A grantor trust is a legal entity an individual creates to hold and control his assets. A grantor trust is different from a grantor of a trust. A grantor trust is the legal entity a person creates, whereas the grantor of a trust is the person who creates it. The person who creates a trust is always called the grantor regardless of whether he creates a grantor trust or a different type of trust.
In a grantor trust, the grantor creates a trust and transfers assets to it. This type of trust is typically revocable. As long as the grantor is alive, he can make changes to the terms of the trust or even revoke it altogether. Upon the grantor’s death, however, the trust becomes irrevocable. This means it must be administered according to the terms the grantor created while he was living. No one can make changes to it once the grantor is dead.
The person who creates a grantor trust can maintain control over the assets in the trust, making decisions regarding the assets just as he did before the trust’s creation. He can appoint himself as its trustee. The trustee title is the official designation for a person who holds and manages assets in a trust. He works to manage the trust for the benefit of its beneficiaries. If the the grantor does not wish to serve as the trustee, he may appoint another competent person to do so in his place.
Usually, a grantor trust will have not only a trustee, but also a successor trustee. This person is appointed to take over control and management of the trust in the event the grantor dies or becomes mentally or physically incapacitated. The successor’s job is to take over all of the day-to-day tasks of managing the trust and ensure the assets are distributed based on the grantor’s written instructions. For example, a successor trustee may distribute assets to the trust’s beneficiaries after the death of the grantor. In other cases, the successor may maintain control of the trust's assets and provide income to the beneficiaries instead.
While the grantor is living, he is usually responsible for taxes on the trust's income. Typically, the beneficiaries receive the income from the trust but do not have to pay any income taxes on it. Tax laws for trusts may vary, depending on where the trust is created and executed. Such laws may also change at any time.