Year-End Gifting: Consider a Grantor Trust

  • Estate Planning
  • Trusts
Year-End Gifting: Consider a Grantor Trust

Upcoming potential tax changes can make it advisable to change your year-end gifting strategies in 2021. For high net worth individuals, in 2021 the gifted amount exempt from federal gift and estate tax is $11.7 million per person. You can gift this amount during your lifetime free of gift taxes. Any unused amount can be applied against federal estate taxes at your death. This exemption gifting exemption is scheduled to expire on December 31, 2025, but many tax experts predict it will expire earlier – perhaps as early as January 1, 2022.

Without knowing what the new tax laws will be, or when they will go into effect, it can be useful to set up more flexible trusts to gift large sums. A grantor trust is a flexible way to gift large sums of money.

What Is A Grantor Trust?

A grantor trust allows the person who created the trust, the grantor, to maintain some power and control over the trust. and to remain the owner of the assets and property in the trust for income and estate tax purposes. It is a living trust, so it goes into effect during the lifetime of the individual who created it.

Grantor trusts allow the assets in the trust to grow income-tax-free, and all income taxes are paid by the grantor. All tax payments reduce the taxable estate yet but are not subject to a gift tax.

There are different types of grantor trusts including:

Revocable Living Trust
A revocable living trust can change its terms or be terminated at any time.

Grantor Retained Annuity Trust (GRAT)
A GRAT is a type of irrevocable trust which allows you to draw income from your assets.

Qualified Personal Residence Trust (QPRT)
A QPRT is a residential property that is transferred into an irrevocable trust for a specified number of years.

Intentionally Defective Grantor Trust (IDGT)
An IDGT requires you to pay income tax on trust assets during your lifetime and can help minimize estate and gift tax liability for wealthier families.

Year-end gift giving has many implications for taxes and estate planning. It’s important to consult an experienced Illinois estate planning attorney to help you determine if your estate would benefit from a grantor trust.

Illinois Gift Tax Attorney

Illinois does not have a state gift tax, but any gift to an individual greater than the annual exclusion must be reported to the IRS. An estate planning attorney experienced in grantor trusts can explain the pros and cons of the different types of grantor trusts for your specific circumstances.

Please call or email our estate planning and trust attorneys at Estate and Planning Legal Group in Oak Brook, Illinois so we can schedule your initial consultation, 6630-864-5835. 

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