Grantor Trust Triggers

One of the more important issues in trust law, is whether any particular trust is considered a grantor or non-grantor trust for tax purposes. The differences between the two are set forth in the Internal Revenue Code and can be rather complicated. 

A grantor trust is one in which the person who created and funded the trust remains in control of it. For tax purposes, non-grantor trusts are normally better, since they can be used to lower state income taxes. 

Qualifying as a non-grantor trust requires that the grantor and the grantor’s spouse do not have beneficial enjoyment of trust property under Section 674. However, there are some very important and useful exceptions to that rule, as Wealth Management discusses in “The Perils and Pitfalls of Grantor Trust Triggers,” including:

  • A reasonable definite standard limits the ability of the trustee to make distributions from the trust. This is known as the “HEMS” exception, since the standard can be health, education, maintenance or support.
  • If a trust has multiple beneficiaries who each receive distributions of income and principle on a pro rata basis, it is an exception.
  • If a trust has only one beneficiary, income and principle must be paid on a definite schedule to that beneficiary for the trust to be an exception.
  • Neither the grantor nor the grantor’s spouse are a trustee, nor are more than 50% of the trustees in a subordinate position to them.

Reference: Wealth Management (June 19, 2018) “The Perils and Pitfalls of Grantor Trust Triggers.”

Hear From Our Clients

“On the threshold of retirement, we finally decided to quit thinking we could self-prepare the requisite documents. We had previously had only a very simple will. We needed the necessary legal (including updated will) & health care docs but didn’t want to deal with the time & complication of legalese. Cindy made the process relatively painless. She took the time to explain and answer questions without trying to upsell services. We were done in 2 meetings plus the reading of emailed drafts. In addition to preparing the documents, Nelson Eldercare will be there when our adult children need advice on executing the plans we’ve put in place.So glad it’s behind us and would recommend Cindy and her helpful staff.”

- Bonnie

Cindy and her company treat their clients like family. Nelson’s offers clear, direct, and honest guidance in planning for your families security and future. No one wants to actively sit down and make these decisions, but Nelson’s makes this process seamless. I was so impressed with their willingness to answer all questions big or small. So glad I made the decision have them help my mom and dad and now me. You can’t go wrong with Nelson’s Elder Care Law.

- Hope

The very best elder law attorney and staff anyone could ever ask for! I have referred a number of clients to Cindy and she never disappoints. She is kind, caring, and extremely thorough in making sure everything is completed as it should be. I highly recommend Cindy for anyone needing lawyer services; she truly goes above and beyond for every client she helps and has had a huge impact in so many peoples’ lives. Thank you, Cindy and staff, for everything that you do- I’m so glad to know you!

- Kerri

I heard Cindy’s presentation at a Senior Luncheon at my church, and was very impressed. She helped my daughter and me understand many aspects of elder law. Josh has also been very helpful in my planning to enter an independent living situation . I have told many friends about them.

- Charlotte

Cindy and the Nelson Elder Care Law team are trustworthy and helpful. They are the experts in elder care law. At Leaf Cremation, we entrust our families to the care of the Nelson team when their services are needed.

- Pierce