Implications of Termination of Grantor Trust Status

Abstract

This article is not intended to be comprehensive with respect to grantor trusts. There are a multitude of articles and treatises that have been published for that purpose. Instead, it is meant to serve as a resource to highlight issues that require consideration when termination of grantor trust status has occurred, is being contemplated, or is foreseeable, and hopefully can help an estate planner formulate a checklist of items to analyze and discuss with clients in connection with the termination.

The article will briefly outline the grantor trust rules, common types of grantor trusts, and termination of grantor trust status. Income tax issues that arise as a result of the termination will then be addressed. In addition to general tax implications, particular assets that may present challenges or require additional planning will be highlighted. Lastly, actions that may be considered before termination of grantor trust status will be presented.