Scranton Grantor Retained Income Trusts Lawyer
A grantor retained income trust (GRIT) is a useful estate planning tool, and one of three tools that allow you to create a “noncharitable” trust. This means the assets in the trust eventually will go to individual beneficiaries rather than a charitable organization. The other types of grantor-retained trusts are a grantor retained annuity trust (GRAT) and a grantor retained unit trust (GRUT).
What is a Grantor Retained Income Trust?
The grantor retained income trust allows you to transfer ownership of particular assets while retaining the income or enjoying use of the property while it’s in the trust. This is especially useful if you want to add your family home into the trust, but still keep living there. A portion of the income applicable to the trust is the right to continue living in your home.
GRITs are irrevocable trusts, so it’s important to speak with a knowledgeable Scranton estate planning lawyer to make sure this is the right option for you. When you place your house in the trust and continue to live in it, it’s called a qualified personal residence trust, which is a type of GRIT allowed under current tax laws. Some other types are no longer permitted.
When the trust goes away, the property in the trust will transfer to the beneficiary. The beneficiary is usually a distant family member.
How GRITs Work?
The way a GRIT works is the grantor makes asset transfers to the trust over a period of time, known as the initial term. Any net income from the trust is distributed by the trustee each year, or whatever period is defined in the agreement. Once the trust expires, the remainder of the trust’s principal is distributed to the named beneficiaries.
Advantages and Disadvantages of a Grantor Retained Income Trust
People who opt for a GRIT are ones who are looking to reduce both their estate and gift taxes. The biggest advantage with a grantor retained income trust is a discount on the federal gift taxation for assets transferred to the trust. How big the discount is will vary based on the term’s initial term and the applicable federal rate at the time the trust was created.
One of the biggest disadvantages with a grantor retained income trust that you cannot list your children or grandchild as beneficiaries. Beneficiaries cannot be of lineal descent with this type of trust. This includes relatives of your spouse as well. If your spouse has children or grandchildren, they cannot be beneficiaries. You can however have your sibling’s decedents as beneficiaries, or even more distant relatives.
If the grantor passes away before the trust expires, there is no estate tax savings either. This means there is a risk with transactional costs to establish the trust in hopes of the tax savings benefit since there is no guarantee the grantor will live longer than the initial GRIT term.
Retaining an Estate Planning Attorney
If you have questions about grantor retained income trusts, or need assistance with other estate planning tools, contact Haggerty Hinton & Cosgrove, LLP at 570-344-9845 to schedule a consultation.