Estate Planning Lawyer Los Angeles

Grantor Trusts, Day One

For the past twenty-four days, we’ve been covering Trusts.

While there are hundreds of different techniques you could use to protect your assets, starting at stashing your cash under the mattress, and moving on up, we believe that one of the most financially sound ways to protect your assets is by setting up a trust.

Over the next two days we’ll be covering what is known as Grantor Trusts.

In short, a Trust is essentially a contract between the person who wishes to protect his assets—also known as a grantor or trustor—and the person who will manage the assets—also known as the Trustee—for the benefit of the beneficiaries—also known as those who will enjoy the distribution of assets under the trust.  To be legally established, the Trust creation necessitates that the title of assets be transferred from the name of the original owner to the legal entity of the Trust.

A Grantor Trust is a trust under which the grantor—or even someone other than the grantor—is legally held to be the trust’s “owner” for the purposes of federal income taxes.

According to Sections 671-679 of the Internal Revenue Code, “The grantor or another person shall be treated as the owner of any portion of a trust, there shall then be included in computing the taxable income and credits of the grantor or the other person those items of income, deductions, and credits against tax of the trust which are attributable to that portion of the trust to the extent that such items would be taken into account under chapter 1 in computing taxable income or credits against the tax of an individual.

The rules shall apply to cause a person to be treated as the owner of a trust only to the extent such application results, directly or indirectly, in any income or other amounts being currently taken into account in computing the income of a citizen or resident of the United States or a domestic corporation.

The Income Tax Regulations provide an exception for any portion of a trust where the power to revest absolutely in the grantor title to the trust property to which such portion is attributable is exercisable solely by the grantor without the approval or consent of any other person.

The grantor is treated as the owner of any portion of a trust where at any time the power to revest in the grantor title to such portion is exercisable by the grantor or a nonadverse party, or both.”

Tomorrow we’ll tell you what all that means in plain English.  Stay tuned!