What is a Grantor Retained Unitrust?

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Grantor Retained Unitrust

A grantor retained unitrust, or GRUT, is a type of trust that can be used to transfer assets without triggering taxes. You might not have heard of this type of trust before. But if you are considering transferring assets to your heirs, it’s worth looking into.

This article will explain the basics of GRUTs and how they work. You’ll learn why GRUTs are beneficial for you and your family. We’ll also discuss some of the basics in setting up a grantor retained unitrust.

If you have any questions or require legal assistance with GRUTs, we invite you to contact Crary Buchanan Attorneys at Law. Our experienced lawyers specialize in grantor retained unitrusts, as well as many other branches of law. So get in touch with us today for legal representation you can trust.

What Is a Grantor Retained Unitrust?

A GRUT is a type of trust that’s commonly used to avoid the estate tax. A GRUT is useful for people who want to transfer assets without triggering capital gains or estate taxes. There are two types of GRUTs: zeroed out and non-zeroed out. The first type, zeroed out, means that the value of the property transferred to the trust will equal the value of all gifts made by the grantor within five years before transferring them to the trust. 

The second type, non-zeroed out, has no limit on how much can be gifted to it by the grantor. But both types have an income tax on any income they generate for their beneficiaries.

Who Can Set Up a GRUT?

A GRUT can be set up by anyone who has control over the assets. The person who sets up the trust is called the grantor. Generally, this will be the person who owns the assets. But it can also be someone else, like a spouse or child, if they have power of attorney for estate planning purposes.

These assets in a grantor retained unitrust will typically include stocks and bonds. You might also give cash or other assets to your family members through a GRUT. In addition to the grantor, the trustee is an individual (or organization) that controls the trust and gives distributions to beneficiaries on behalf of the trust once there is no longer any money left in the trust.

If you want to set up a GRUT, you’ll need to find a trustee that is willing to serve as one for you—usually an investment advisor or lawyer with knowledge of estate law and taxes. Once you find someone, they can help you draft up all of the necessary legal documents and file them with your state government so that your new trust can be created.

Why You Should Consider Setting Up a GRUT

You might be thinking that you can just transfer your assets to your children without setting up a trust. But transferring assets could result in a taxable event from federal estate taxes. If you set up a GRUT instead, you would avoid this.

The other reason to consider a GRUT is to protect your family from creditors or lawsuits. In case of a lawsuit or bankruptcy, the trustee has the power to go after trust assets for your benefit and not have any of the remaining trust assets go towards paying off any claims against you. 

This means that if your home was transferred into a GRUT and then it was foreclosed on by your bank, only the cash value of your grantor retained unitrust would be seized by the trustee rather than all of it being used to pay what you owe otherwise.

The Basics of Creating a GRUT

How does a GRUT work? The trust is set up with an initial contribution of assets. You then decide how much of that initial contribution you want to receive each year. The money is then distributed to you, as well as any designated beneficiaries—usually your children or grandchildren—upon your death.

GRUTs are also called unitrusts because the payout amount remains fixed for the duration of the trust term. If inflation rises, you can increase the payout from the assets in the trust each year.

Some people use a GRUT as a way to save on taxes. Remember, a GRUT is a trust, so all income and gains on those assets grow tax-free until they’re given out to beneficiaries. When you set up a GRUT, you’ll have the option to designate yourself as one of those beneficiaries so that you don’t pay taxes when you get distributions from the trust later on down the line.

Call Crary Buchanan for Help with Grantor Retained Unitrusts

It’s important to seek experienced legal counsel for your needs related to grantor retained unitrusts. At Crary Buchanan Attorneys at Law, our lawyers have extensive experience assisting clients in these matters. So give us a call at (772) 287-2600, or email us at info@crarybuchanan.com to get started.

The information in this blog post is for reference only and not legal advice. As such, you should not decide whether to contact a lawyer based on the information in this blog post. Moreover, there is no lawyer-client relationship resulting from this blog post, nor should any such relationship be implied. If you need legal counsel, please consult a lawyer licensed to practice in your jurisdiction.