You may have been recommended to establish a living trust so that you may avoid certain taxes on your estate. However, the Internal Revenue Service (IRS) continuously imposes strict income tax laws that make it more and more difficult to get around paying taxes on your hard-earned assets and property, even those kept away in a trust fund. Typically, the more control you wish to maintain over a trust, the more responsible you will be for its taxes. This is directly referencing the concept of a grantor trust. So, without further ado, please follow along to learn more about a grantor trust before you commit to establishing one and how a proficient Putnam County trusts attorney at the Law Office of Andres D. Gil, PLLC can help further enrich your understanding of this trust type.
What tax implications should I know come with a grantor trust?
You may want to place certain assets and property into a living trust to spread your wealth and, in turn, lessen your yearly federal and state income tax obligations. However, with a grantor trust, you may still be recognized as the owner of the assets and property held within it. Therefore, you may still be acknowledged as the responsible party for paying income taxes on any income this trust’s assets and property generate. This is in contrast to having the trust itself pay these taxes.
Ultimately, this may catapult you into a higher tax bracket and have you paying at a higher income tax rate. While this may appear to be a negative, it can be argued that these taxes may be less if they are imposed at your income tax rate rather than that of the trust itself. This is to say that you may help your designated beneficiaries get more of what was promised from the trust’s funds.
What types of trust are considered to be grantor trusts?
A grantor trust is not a specific type of trust. Rather it is an umbrella term for different trusts that possess certain characteristics. Usually, these characteristics have to do with your powers as a grantor. That is, you may be the owner of a grantor trust if the following circumstances are proven true:
- You have the power to serve as the trustee of the trust.
- You have the power to choose your trustee and replace them as you see fit.
- You have the power to add, remove, or substitute designated beneficiaries as you see fit.
- You have the power to modify terms and conditions or revoke the trust entirely as you see fit.
In the end, this blog is just the tip of the iceberg when it comes to estate planning and tax laws in New York State. So for more information, please reach out to a talented Putnam County estate planning attorney from the Law Office of Andres D. Gil, PLLC today.