What Is a Grantor Trust?
Continue reading to learn more about a grantor trust and how one of the experienced Butler County trust attorneys at Heritage Elder Law & Estate Planning, LLC can help figure out whether this is a well-worth asset to your estate plan.
What should I know about a grantor trust?
In short, a grantor trust is one in which you, the grantor, are considered the owner of the assets within it for income tax purposes. Meaning, you are still held responsible for paying income taxes on any income this trust’s assets generate. So, it is apparent that the possible con here is that you will have to claim the grantor trust as part of your taxable income. Therefore, you may potentially be placed into a higher tax bracket, subsequently raising the taxes you are expected to pay.
However, the benefits of this trust type may outweigh this drawback. Mainly, the advantage is that you get to maintain control over this trust’s assets throughout the rest of your lifetime. This may allow you more flexibility if you are still slightly hesitant about what you want your estate plan to accomplish. Or, if you expect to undergo significant life events and changes from now until your unfortunate passing.
How does Pennsylvania law recognize grantor trusts?
As of December 14, 2023, Pennsylvania income tax law has recognized federal grantor trust rules. This means that you may now be expected to pay state personal income tax on this trust’s assets regardless of whether you receive any income from it. This is a dramatic change in law because, before, these taxes were imposed on the trust itself or its beneficiaries. Of note, this is set to be incorporated into the Commonwealth of Pennsylvania on tax years beginning in 2025.
Which types of trust can be considered a grantor trust?
For emphasis, a grantor trust is an umbrella term rather than a particular type of trust. This is to say that varying trusts may fall under this category. The most common of these is a revocable living trust. This is because a revocable living trust allows you to modify its terms and conditions throughout the rest of your lifetime. So, they are considered to be grantor trusts while you are still alive.
Then, less commonly, a grantor trust may be an irrevocable living trust. This is because only certain kinds of irrevocable living trusts may allow you to hold onto certain powers throughout the rest of your lifetime. Namely, there is the intentionally defective grantor trust or irrevocable life insurance trust, among others.
This blog is just the tip of the iceberg when it comes to estate planning and tax laws in the Commonwealth of Pennsylvania. So for more information, please reach out to one of the skilled Butler County trust attorneys from Heritage Elder Law & Estate Planning, LLC today.
