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LEGAL DICTIONARY

Grantor

What Is a Grantor?

A grantor is a person or entity that establishes a trust. In estate planning, this term is often used interchangeably with "creator," "settlor," "trust maker," or "trustor."

A trust is a fiduciary agreement that gives the legal right to a third party, called a trustee, to hold assets on behalf of the beneficiary or beneficiaries. The grantor sometimes acts as the trustee, but this duty is not a requirement.

If the grantor serves as the trustee, the trust is called a grantor trust. In some cases, the grantor might be a beneficiary of the trust.

When the grantor creates the trust and transfers control of the assets to a trustee, the grantor relinquishes control of the assets. The trustee is the one who then has the responsibility of managing the trust for the benefit of the beneficiaries named in the trust. As a result, the trust becomes a separate tax entity from the grantor.

Grantor vs. Grantee vs. Trustee

The terms grantor and grantee describe two distinctly different roles in estate planning. While the grantor is the individual who creates the trust, the grantee is the person or entity that receives the assets. A trust's grantee and beneficiary are the same person or entity.

The grantor and trustee can be the same person, or the grantor can select someone else to handle this responsibility. The trustee is responsible for managing the trust in the best interests of the beneficiaries.

What Are the Responsibilities of a Grantor?

As the person who sets up a trust, a grantor has some important responsibilities. These include:

  • placing property and other assets into the trust
  • naming the trust beneficiaries
  • designating the trustee(s) and successor trustee(s)

If the grantor serves as the trustee of a living trust, they have a fiduciary responsibility to manage the trust in the best interests of the beneficiaries. As trustee, the grantor may modify the trust at will, including any of the following:

  • removing or adding assets to the trust
  • changing the trust beneficiaries
  • making investment decisions for the trust income
  • deciding how trust assets are distributed
  • borrowing funds from the trust without paying interest

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Why Create a Trust?

The IRS considers all revocable trusts as grantor trusts. With a revocable trust, the grantor retains the ability to make changes to the assets in a trust during their lifetime.

In other words, a revocable trust allows the grantor to change the terms of the trust agreement at any time by executing an amendment to the trust document. With this freedom, a grantor can add or take away a beneficiary as life circumstances change.

In contrast, an irrevocable trust can only be changed under narrow circumstances. The IRS considers irrevocable trusts to be non-grantor trusts under the IRS. However, in some cases, the IRS may give grantor trust status to an irrevocable trust.

One of the main benefits of creating a trust is that your assets do not have to go through probate after you pass away. By avoiding this court process, beneficiaries can benefit from the estate more quickly, and the grantor's financial matters remain private. There also may be some tax benefits associated with the trust.

Helpful Resources:

Cornell Law - Grantor

Policygenius - What Is a Grantor in Estate Planning?

Jefferson County, WA - Grantor & Grantee Definitions

What Is a Grantor?

A grantor is a person or entity that establishes a trust. In estate planning, this term is often used interchangeably with "creator," "settlor," "trust maker," or "trustor."

A trust is a fiduciary agreement that gives the legal right to a third party, called a trustee, to hold assets on behalf of the beneficiary or beneficiaries. The grantor sometimes acts as the trustee, but this duty is not a requirement.

If the grantor serves as the trustee, the trust is called a grantor trust. In some cases, the grantor might be a beneficiary of the trust.

When the grantor creates the trust and transfers control of the assets to a trustee, the grantor relinquishes control of the assets. The trustee is the one who then has the responsibility of managing the trust for the benefit of the beneficiaries named in the trust. As a result, the trust becomes a separate tax entity from the grantor.

Grantor vs. Grantee vs. Trustee

The terms grantor and grantee describe two distinctly different roles in estate planning. While the grantor is the individual who creates the trust, the grantee is the person or entity that receives the assets. A trust's grantee and beneficiary are the same person or entity.

The grantor and trustee can be the same person, or the grantor can select someone else to handle this responsibility. The trustee is responsible for managing the trust in the best interests of the beneficiaries.

What Are the Responsibilities of a Grantor?

As the person who sets up a trust, a grantor has some important responsibilities. These include:

  • placing property and other assets into the trust
  • naming the trust beneficiaries
  • designating the trustee(s) and successor trustee(s)

If the grantor serves as the trustee of a living trust, they have a fiduciary responsibility to manage the trust in the best interests of the beneficiaries. As trustee, the grantor may modify the trust at will, including any of the following:

  • removing or adding assets to the trust
  • changing the trust beneficiaries
  • making investment decisions for the trust income
  • deciding how trust assets are distributed
  • borrowing funds from the trust without paying interest

Get Your Free Power of Attorney Form

Why Create a Trust?

The IRS considers all revocable trusts as grantor trusts. With a revocable trust, the grantor retains the ability to make changes to the assets in a trust during their lifetime.

In other words, a revocable trust allows the grantor to change the terms of the trust agreement at any time by executing an amendment to the trust document. With this freedom, a grantor can add or take away a beneficiary as life circumstances change.

In contrast, an irrevocable trust can only be changed under narrow circumstances. The IRS considers irrevocable trusts to be non-grantor trusts under the IRS. However, in some cases, the IRS may give grantor trust status to an irrevocable trust.

One of the main benefits of creating a trust is that your assets do not have to go through probate after you pass away. By avoiding this court process, beneficiaries can benefit from the estate more quickly, and the grantor's financial matters remain private. There also may be some tax benefits associated with the trust.

Helpful Resources:

Cornell Law - Grantor

Policygenius - What Is a Grantor in Estate Planning?

Jefferson County, WA - Grantor & Grantee Definitions