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What’s the difference between a grantor trust and a non-grantor trust?


What’s the difference between a grantor trust and a non-grantor trust?

Grantor trusts

  • A grantor trust is a trust where the person who created the trust (the grantor) still has some control over the trust’s assets and income.
  • This means that the grantor is taxed on the trust’s income, even though the trust is technically a separate entity.
  • Grantor trusts are often used for estate planning purposes, because they can help the grantor reduce their taxable income.

Non-grantor trusts

  • A non-grantor trust is a trust where the grantor has no control over the trust’s assets and income.
  • This means that the trust is taxed separately from the grantor, and the grantor does not have to pay taxes on the trust’s income.
  • Non-grantor trusts are often used to protect assets from creditors or to provide for beneficiaries after the grantor’s death.

How they are taxed

  • Grantor trusts use the grantor’s Social Security Number (SSN) for tax purposes.
  • The income of a grantor trust is taxable to the grantor, even if the trust distributes the income to other people.
  • Non-grantor trusts have their own Tax Identification Number (TIN) and are taxed separately from the grantor.
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What is a Trust?

A Living Trust is a financial tool that lets you plan, organize, and protect your life. It’s a personal entity that allows you to add assets and plan out your inheritance. Eliminating legal battles, cost, and time spent by your loved ones. 

Think of it like a personal LLC that you put everything you own in. Except it doesn’t protect you from liability like an LLC does, it protects you from probate and conservatorship. 

Probate is the complicated court process (12-18 months) where a judge decides what happens to your assets after you die, become incapacitated, or are “deemed” incapable. Creating a living trust allows your assets to completely circumvent probate and immediately transfer to your loved ones. 

In addition to being able to name heirs (your beneficiaries), a Trust also allows you to assign someone to manage it (your successor trustee). Instead of going through probate, your Successor Trustee takes control of the Trust, handles your affairs, and distributes your assets according to your instructions. The person you select as Successor Trustee should be your most trusted person. Like a best friend or closest family member.

At Dynasty, we believe everyone should have a Living Trust. If you have children, assets, or plan to acquire assets in the future, you should create a Trust. That way when you buy your next home, open a bank or brokerage account, get startup shares, etc. – you can immediately title them in your trust.