• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer
logo

Ovando Bowen, LLP

Helping Families & Small Businesses Protect Their Assets

Attend a Free Webinar
phone-call949-490-4884
  • Home
  • WHO WE ARE
    • About Our Firm
    • About The American Academy
    • Advantages of Working With Our Firm
    • Attorney and Staff Profiles
    • Speaker Connection
  • Estate Planning
    • Business Owners & Asset Protection
    • Estate and Gift Tax Figures
    • Family-Owned Businesses & Farms
    • Financial Planning Assistance
    • Incapacity Planning & Caregiver Support
    • IRA Inheritance Planning
    • LGBTQ+ Estate Planning
    • Medi-Cal & Elder Law Planning
      • Are You A Caregiver?
      • Coping With Alzheimer’s
      • Emergency Medi-Cal & Nursing Home Planning
      • Guardianship & Conservatorship
      • Options for Paying for Nursing Home Care
      • Medi-Cal Planning
      • Veteran’s Benefits
    • Minor Children & Young Adult Planning
    • Outdated Estate Planning Documents
    • Powers of Attorney, Healthcare & Emergency Documents
    • Probate
    • Probate Litigation
    • Remarriage & Blended Families Protection
    • SECURE Act
    • Special Needs Planning
    • Trust Administration
    • Wills And Trusts
  • Other Services
    • Business Planning & Litigation
    • Family Law
    • Intellectual Property
    • Small Business Membership
  • WORKSHOPS
  • RESOURCES
    • DocuBank
    • Estate Planning Resources
      • Estate Planning Definitions
      • Is Your Estate Plan Outdated?
      • Reports
      • Top 10 Estate Planning Techniques
    • Elder Law Reports
    • FAQs
      • Estate Planning FAQs
      • Incapacity Planning FAQs
      • Probate & Trust Administration FAQs
    • LGBTQ+ Resources
    • Pre-Consultation Form
    • Special Needs Resources
    • Trust Administration And Probate Resources
      • Bereavement Resources
      • How to Know if You Need Extra Help With Your Grieving
      • The Mourner’s Bill of Rights
      • Things You Need To Do When a Loved One Passes Away With a Will
      • Things You Need To Do When a Loved One Passes Away With a Trust
      • Trust Administration & Probate Definitions
  • REVIEWS
    • Review Us
    • Our Reviews
  • Blog
  • Contact Us

Grantor Trusts: Overview

February 24, 2020 by Sara Ovando

There is a trust defined by Code Sections 671-679 referred to as Grantor trust. A transfer to an irrevocable trust can be treated simultaneously as both (i) a completed transfer for estate and gift purposes and (ii) an incomplete transfer for income tax purposes. Therefore, it is possible to structure an irrevocable trust so that the assets of the trust will be excluded from the donor’s estate at his death, while at the same time the trust will be a grantor trust for income tax purposes during the donor’s lifetime.

Grantors commonly fund these trusts through the mechanism of an installment sale or a SCIN (self-canceling installment note). This avoids any gift tax issues, and transfers, at the very least, the future appreciation of the asset, out of the grantor’s estate. Using a SCIN, it is possible to transfer a lot more than just future appreciation out of the taxable estate, if the grantor dies prematurely.

When choosing between a SCIN and a standard installment note, the tax advisor must determine whether the client’s objective is estate tax reduction, income tax reduction, or both.
If the sole objective is the reduction of the estate tax, then either structure can be used. If the objective is to also incorporate income tax planning then a defective grantor trust cannot be used, as the transaction will be ignored for income tax purposes.

Provisions that should be contained so that a transfer of assets to the trust is complete for estate and gift tax purposes, but ignored for income tax purposes are: power to reacquire or substitute assets (Code Section 675(4)(c)); loans to grantor (Code Section 675(2)); power to control beneficial enjoyment (Code Section 674(a)); power to distribute to Grantor’s spouse (Code Section 677(a)); paying life insurance premiums (Code Section 677(a)(3)).

DISCLAIMER: This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand that there is no attorney-client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

  • Author
  • Recent Posts
Sara Ovando
Sara Ovando
Sara is a founding partner of Ovando Bowen LLP. Prior to starting her own firm, Sara worked at a personal injury and employment firm. Sara now focuses her career on helping entrepreneurs form their companies and manage business risks, estate planning and probate.
Sara Ovando
Latest posts by Sara Ovando (see all)
  • Application of the Transfer for Value Rule to the Sale of Life Insurance - April 4, 2022
  • What Estate of Marion Levine Means for Life Insurance - April 3, 2022
  • Overtime and Exemptions - January 4, 2022

Filed Under: Trust Administration

Primary Sidebar

Search

Blog Subscription

checkbox

Download Our Free Estate Planning WorkSheet

There’s a lot that goes into setting up a comprehensive estate plan, but with our FREE worksheet, you’ll be one step closer to getting yourself and your family on the path to a secure and happy future.
Texting Permission

Address

Ovando Bowen, LLP
1800 E. Garry Avenue, Suite 116
Santa Ana, CA 92705

Map

Office Hours

Monday9:00 AM - 5:00 PM
Tuesday9:00 AM - 5:00 PM
Wednesday9:00 AM - 5:00 PM
Thursday9:00 AM - 5:00 PM
Friday9:00 AM - 5:00 PM

Footer

OVANDO BOWEN, LLP

Ovando Bowen, LLP
1800 E. Garry Avenue, Suite 116
Santa Ana, CA 92705
Phone: 949-490-4884
  • Facebook
  • Instagram
Map

Office Hours

Monday9:00 AM - 5:00 PM
Tuesday9:00 AM - 5:00 PM
Wednesday9:00 AM - 5:00 PM
Thursday9:00 AM - 5:00 PM
Friday9:00 AM - 5:00 PM

© 2022 American Academy of Estate Planning Attorneys, Inc. • Disclaimer | Privacy Policy | Sitemap