38 THE QUEENS COURIER • QUEENS BUSINESS • SEPTEMBER 12, 2019 FOR BREAKING NEWS VISIT WWW.QNS.COM
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Elder Law Minute TM
Introduction to Grantor Trusts
BY RONALD A. FATOULLAH, ESQ.
AND JOSEPH BRENINGSTALL, J.D.
Trusts can be very eff ective estate, tax
and long-term care planning tools; however,
various types of trusts can diff er greatly
in their applications and objectives. Th is
article will be the fi rst installment in a
two-part series introducing the concept
of grantor/non grantor and intentionally
defective grantor trusts.
A grantor trust is a trust in which the
grantor continues to be treated as the
owner of the trust assets for income tax
purposes even though ownership of the
asset has been transferred to the trust.
A grantor is the person who creates the
trust and transfers assets to the trust. Th e
income generated by a grantor trust will
be taxed to the grantor individually and
not to the trust. Since trusts are generally
taxed at rates which are higher than the
individual rate, the grantor trust concept
is oft en a great way for the grantor to save
on his or her taxes.
Internal Revenue Code sections 671
through 678 deal with grantor trusts. Th ere
are a number of situations in which a trust’s
income will continue to be taxed to the
grantor personally and not as a separate
entity. Th e primary example of a typical
grantor trust is the revocable trust. A trust
is revocable when the grantor retains the
ELDER LAW
right to amend or terminate the trust. A
revocable trust is typically an extension of
the individual who creates it. Th ere are also
situations in which a trust will be a grantor
trust even when it is irrevocable. An example
of this is an irrevocable trust that gives
the grantor a non-fi duciary right to substitute
trust assets with other assets of equal
value. In this situation, the trust is still considered
a grantor trust for income tax purposes
even though the grantor may no longer
have the right to revoke the trust.
Another scenario in which a trust will be
categorized as a grantor trust is when the
grantor has retained a power of disposition,
meaning the power to control the benefi -
cial enjoyment of the trust assets. Perhaps
the most obvious example of an irrevocable
trust that is also a grantor trust is when
the trust income is payable to the grantor.
Furthermore, a trust will also be considered
a grantor trust if the grantor retains certain
administrative powers over the trust assets,
such as the ability to borrow trust funds
without adequate interest or security, or the
ability to vote on stock owned by the trust.
Th ere are many benefi ts to a grantor
trust. For example, when a grantor trust
owns the grantor’s primary residence, the
grantor may benefi t from the $250,000
capital gains tax exclusion. When an
individual sells his or her house there is
typically a tax imposed on any gains from
the sale. Every individual has the right
to off set this gain by a $250,000 exclusion,
provided he or she has owned and
resided in the home for two of the preceding
fi ve years. Th is exclusion will still
be available if the house is transferred to
a grantor trust and later sold. In a situation
in which the home is transferred to
a non-grantor trust, as described below,
this benefi t would no longer be available.
A non-grantor trust is one in which the
grantor gives up all control of the trust
property and is not an income benefi ciary
of the property. A non-grantor trust is
a separate taxable entity and is required to
fi le its own trust income tax return (Form
1041). For any income from the trust that
is distributed to a benefi ciary, the trust will
be required to issue a Schedule K-1 to each
benefi ciary of the trust so the income can
be reported on the benefi ciary’s personal
income tax return. For many years, and
in many circumstances, grantor trusts were
preferred over non-grantor trusts because
of the income tax benefi ts to the grantor.
However, with the passing of the Tax Cuts
and Jobs Act of 2017, non-grantor trusts
have become a popular method of utilizing
the maximum allowed state and local
tax deductions, which are now capped at
$10,000, as well as the 20% deduction the
new law gives to pass through entities. State
law must be considered, of course, before
utilizing non-grantor trusts for these purposes.
Th is article touched upon the concept
of grantor and non-grantor trusts. In our
next article, we will further discuss these
trusts, and we will introduce the concept
of an intentionally defective grantor trust
and illustrate how such trusts can help
eff ectuate one’s estate and long-term care
planning goals.
Ronald A. Fatoullah, Esq. is the founder
of Ronald Fatoullah & Associates, a law
fi rm that concentrates in elder law, estate
planning, Medicaid planning, guardianships,
estate administration, trusts, wills,
and real estate. Joseph Breningstall, J.D.
is an associate attorney with the fi rm
(admission pending). Th e law fi rm can
be reached at 718-261-1700, 516-466-
4422, or toll-free at 1-877-ELDER-LAW
or 1-877-ESTATES. Mr. Fatoullah is also
a partner advisor with Advice Period, a
wealth management fi rm that provides
a continuum of fi nancial and investment
advice for individuals and businesses,
and he can be reached at 424-256-7273.
RONALD FATOULLAH
ESQ, CELA*
editorial
EMPLOYMENT MATTERS
Paid Leave to Vote is the Law
In 2019 the New York Election Law
was amended to provide registered voters
with up to three (3) hours of paid
leave to vote in any election.
Employees are no longer required to
establish that they do not have at least
four consecutive hours to vote before
or aft er work in order to be eligible for
paid voting leave. Instead, all employees
may request up to three (3) hours of paid
time off to vote, regardless of their work
schedules, as long as the request is made
at least two working days prior to the
election. An employer may not deny the
request but may designate that the voting
leave time be taken at the beginning
or end of the employee’s shift .
Th e New York State Board of Elections
has issued an updated notice that must
be posted conspicuously in the workplace
at least ten (10) business days prior
to any election.
With Election Day approaching in
November, we recommend that all
employers post the updated notice
ASAP. Employers should also revise the
voting leave policies in their employee
handbooks and policy manuals to refl ect
the amended leave entitlement.
Mindy Stern, SPHR, SHRM-SCP, ACC
is a trusted HR advisor, leadership coach,
author, educator, speaker and president
of AIM Resource
Group Inc. Visit
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© AIM Resource Group Inc. www.aimresourcegroup.
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EMPLOYMENT
MATTERS
MINDY STERN
SPHR, SHRM-SCP,
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