What is a grantor’s role in estate planning?

A grantor is a person who creates a trust. They may or may not be able to modify it

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Elissa SuhSenior Editor & Disability Insurance ExpertElissa Suh is a disability insurance expert and a former senior editor at Policygenius, where she also covered wills, trusts, and advance planning. Her work has appeared in MarketWatch, CNBC, PBS, Inverse, The Philadelphia Inquirer, and more.

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A grantor is someone that gives property to another person called the grantee. In estate planning, a grantor, also known as the settlor or trustor, transfers property to a beneficiary through a trust. In real estate a grantor conveys property to a grantee through a deed.

A trust is a separate entity that holds assets and property, typically intended for the grantors beneficiaries. A grantor may open a trust as a way to distribute an inheritance to family and loved ones as part of their estate plan. With a revocable trust, the grantor has the ability to modify the trust — removing trust property, changing the trust beneficiary, or collecting and investing the trust income. The grantor can also revoke these privileges, which will help shield them from potential taxes and liabilities. If you create a trust, its important to know what you can and cant do as a grantor, since youll face different tax consequences.

Key takeaways

  • A trust grantor is the creator of the trust.

  • All revocable trusts are considered grantor trusts by the IRS.

  • Grantors face different tax consequences on their trust assets, depending on their ability to modify the trust.

  • A real estate grantor conveys property to the grantee.

What is a trust grantor?

The grantor is the person who sets up a trust, which is an important part of an estate plan.

A strong estate plan starts with life insurance

The grantors responsibilities include:

The trustee manages the trust, not the grantor, and they have the fiduciary responsibility to act in the best interests of the trust. Oftentimes the grantor chooses to act as trustee during their lifetime. When the grantor opens a trust and acts as trustee, they’ve set up a grantor trust, which we’ll talk more about next.

Generally, when the grantor acts as trustee, they have the power to modify the trust and remove trust property at will.

Learn how to set up a trust in just six steps

What is a grantor trust?

A grantor trust is a term typically used by the Internal Revenue Service (IRS) to describe any trust where the grantor retains the ability to make changes regarding the trust property. Under the IRS code, all revocable trusts are grantor trusts.

With a revocable trust (grantor trust), the grantor has the freedom to do the following:

  • Change the trust beneficiaries

  • Move property in and out of the trust

  • Invest the trust income

  • Receive the trust income or decide how the trust assets are distributed

  • Borrow trust funds without paying interest

  • Retain any administrative rights (like serving as trustee)

A revocable trust provides flexibility. For example, the grantor can retitle a car into their trust with the intention of passing it along to their son. If they needed to free up their cash flow, they could remove it from the trust and sell it.

Learn about settling a revocable trust after the grantor dies

If you are the grantor, its important to know what level of power you exercise over the trust — namely whether you amend or modify the trust in any way — since it will determine if yours is a grantor trust, which in turn will dictate any tax implications (more on that later.)

Can an irrevocable trust be a grantor trust?

The opposite of a revocable trust is an irrevocable trust, which cant be dissolved except under narrow circumstances. Irrevocable trusts are typically non-grantor trusts under the IRS, but in some cases an irrevocable trust will actually be given grantor trust status, such as when it does any of the things listed above. If you want to open an irrevocable trust, you should to hire a legal professional like an estate planning attorney who understands the ins and outs of the Internal Revenue code; you dont want to unintentionally create the wrong kind of trust.

Learn more about how irrevocable trusts work and if it’s right for you

Grantors & taxes

In general, a grantors tax liability is tied to whether or not they have the ability to change the trust. The grantor will reap more tax benefits if they don’t have the ability to revoke the trust.

Income tax liability

Even though assets and property may have been retitled into revocable trust for a beneficiary, they’re still owned by the grantor for income tax purposes. That means the grantor must claim the assets on their own tax return and pay any applicable income tax on the money generated by the trust funds.

(By contrast, with a properly constructed irrevocable trust, when a grantor doesn’t act as the trustee, the grantor would not have to pay taxes on the trust property. The trust would pay taxes on its own as a separate entity with its own tax identification number.)

Relatedly, if youre looking to qualify for government benefits, like Medicaid, and need to meet an income or asset limit, the earnings and assets in your revocable trust will be considered part of your income and assets. You can establish a Medicaid trust to help you qualify for long-term care from Medicaid.

Read more about how trusts are taxed

Grantors & estate tax

Revocable trust assets and property are includable in the grantors estate for federal estate tax purposes. If the gross value of the grantors estate is over a certain amount, then estate tax will be due. The federal estate tax threshold is very high — $13.61 million in 2024 — so most estates wont have to pay it. Some states also levy their own estate tax.

To reduce potential estate and income tax liability, you should look to an irrevocable trust.

Learn more about how to avoid estate tax

Grantor & grantee in real estate

The term grantor isnt limited to estate planning. In real estate, a grantor transfers property to a grantee. A grantor and grantee can conduct real estate transactions through a deed. For example, a transfer on death deed allows a grantee to receive a house from the grantor, upon the grantors death. Other types of deeds that a grantor can use include a quitclaim deed, warranty deed, and deed in lieu of foreclosure.

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