Most common types of Grantor Trusts

Examples of common types of Grantor Trusts include:

• Retained Interest Trusts:
 

• Retained Interest Trusts:
   
  
  • Revocable Trust (also known as a Living Trust)
  • Grantor Retained Annuity Trust (GRAT)
  • Qualified Personal Residence Trust (QPRT)
 

• Intentionally Defective Grantor Trust (IDGT)
   
  
  • An IDGT is a completed transfer to a trust for transfer tax purposes but an incomplete, "defective" transfer for income tax purposes
     
    
    • the trust can be outside of the grantor’s estate for estate and gift tax purposes if the grantor has not retained any powers that would cause estate tax inclusion
    • the future value of the assets transferred are removed from the grantor's gross estate on the date of the trust's funding
    • due to one of the above powers retained by the grantor, the trust is treated as a Grantor Trust for income tax purposes
    • the grantor, not a beneficiary, is taxed on all the trust's income, even though he or she is not entitled to any trust distributions

Grantor Trusts are a valuable estate planning tool, with revocable trusts being by far the most common type, and can offer significant possibilities for estate or gift tax savings. Clients should consider the importance of these trusts in their estate plans.