Grantor Trust Rules


DEFINITION of 'Grantor Trust Rules'

Guidelines that state a trust is considered to be a grantor trust if the grantor has a reversionary interest greater than 5% of the trust assets (at the time the transfer of assets to the trust is made). If a trust is considered to be a grantor trust, then the income from the trust will be taxed to the grantor, and not to the trust.

BREAKING DOWN 'Grantor Trust Rules'

Because the tax rates for trusts are much higher than for individuals, the grantor will often retain a revisionary interest in the trust so that the trust income is taxed at the grantor's rate instead of at the trust level.

If the grantor so chooses, a grantor trust may be amended so the grantor is no longer eligible to receive the benefits or able to control the trust, then the trust will effectively become a irrevocable trust. This will result in more taxes being paid on any income that is taxable to the trust, and not the beneficiaries.

  1. Intentionally Defective Grantor ...

    An estate planning tool used to freeze certain assets of an individual ...
  2. Irrevocable Beneficiary

    A beneficiary in a life insurance policy or segregated fund contract ...
  3. Grantor

    1. A seller of either call or put options who profits from the ...
  4. Income Trust

    An investment trust that holds income-producing assets and trades ...
  5. Distributable Net Income - DNI

    In the case of an income trust, an amount that is transferable ...
  6. Irrevocable Trust

    A trust that can't be modified or terminated without the permission ...
Related Articles
  1. Retirement

    Pick The Perfect Trust

    Trusts are an estate plan's anchor, but the terminology can be confusing. We cut through the clutter.
  2. Personal Finance

    Special Trusts For Special Needs

    If you or someone you love has a disability, these trusts can help ease the cost of care.
  3. Insurance

    Encouraging Good Habits With An Incentive Trust

    Money can be a powerful motivator - why not use it to teach your heirs positive lessons?
  4. Retirement

    Establishing A Revocable Living Trust

    This arrangement allows you to have more control over your estate - both before and after your death.
  5. Investing Basics

    Do You Need More Than One Financial Advisor?

    Using more than one financial advisor for money management has its pros and cons.
  6. Taxes

    How & Where to File Form 1040 (And Which Version)

    All taxpayers need to know three things when filing a 1040: which form to use, how to file and where to file. After reading this, you'll know all three.
  7. Savings

    Should You Look at 529 Plans Outside Your State?

    529 savings plans are not restricted by geography. So if your in-state offering has high fees or poor investment choices, look elsewhere.
  8. Insurance

    Cashing in Your Life Insurance Policy

    Tough times call for desperate measures, but is raiding your life insurance policy even worth considering?
  9. Retirement

    Pros and Cons of Deferred Compensation Plans

    Learn about the pros and cons of non-qualified deferred compensation (NQDC) plans, including the flexibility of non-ERISA plans and the potential for forfeiture.
  10. Savings

    How To Set Up A Trust Fund If You're Not Rich

    You don't need to be worth millions to create your own trust fund. Learn how your money can be handled in the event of your death.
  1. Can personal loans be included in bankruptcy?

    Personal loans from friends, family and employers fall under common categories of debt that can be discharged in the case ... Read Full Answer >>
  2. How much money does Texas make from unclaimed property each year?

    In 2014, the office of the Texas Comptroller of Public Accounts reported $234 million in unclaimed property claimant liabilities, ... Read Full Answer >>
  3. Are Cafeteria plans subject to FICA, ERISA or FUTA?

    Cafeteria plans are employer-sponsored benefit plans that provide both taxable and nontaxable, or qualified, benefit options ... Read Full Answer >>
  4. How much money does Michigan make from unclaimed property each year?

    According to the 2013-2014 Annual Report of the State Treasurer, the state of Michigan earned only $82,875 in abandoned and ... Read Full Answer >>
  5. Who decides if a financial security should be escheated?

    There is no one entity who "decides" to escheat assets. Rather, financial institutions are required to report inactive accounts ... Read Full Answer >>
  6. What financial assets can be escheated?

    Any financial assets you hold at a bank or investment or brokerage firm can be escheated by the state government if your ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  2. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  3. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  4. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  5. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  6. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
Trading Center