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Margaret Van Houten presented "A Primer on the Use of Grantor Trusts in Estate Plans" at the University of Iowa Planning Seminar on Saturday, November 15, 2008.
In the past several years, we have been hearing more about the benefits of using “Grantor Trusts” in estate plans. This would include the popular techniques of Grantor Retained Annuity Trusts (“GRATs”), sales to intentionally defective grantor trusts (“IDGT”), education trusts that are specifically structured as a grantor trust, and many insurance trusts. A Grantor Trust may also be used to qualify a trust as a qualified shareholder for S Corporation purposes.
The primary benefit of a Grantor Trust is that a trust may be structured so that transfers to the trust are completed gifts, but the income of the trust is taxed to the person transferring the assets. In recent years, it has been verified that a grantor who pays the income tax on the income of a trust will not be making a gift to the trust beneficiaries.
The primary benefit of a grantor trust is that it is a very effective way to transfer wealth to beneficiaries without paying gift tax.
Other information includes definition of a Grantor Trust, consequences of Grantor Trust status, provisions that cause Grantor Trust status, flexibility in turning on and turning off Grantor Trust stauts, and selected issues.
