What is a Grantor Trust? How does a Grantor Trust relate to the Trust contract?
Grantor Trust – What is it?
- The purpose of a Trust is to create an “Artificial Legal Person” to protect, hold, and manage your private wealth for the benefit of your heirs.
- As in any contract, someone must initiate the contract (Grantor or Trustee). So the Grantor Trust is simply someone who has initiated the Trust. Read below for what is a Non-Grantor Trust.
- The contract (trust agreement) must specify the who, what, where, when, why, and other conditions.
- Finally, the contract is for the benefit of someone or something. In other words, the beneficiaries could be the wife, children, grandchildren, church, other charitable organizations, etc.
- Other names used for the word “Grantor”: Trustor, Settlor
How does a Grantor of a Trust relate to the Trust Contract?
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The concept of a trust was first used in Anglo Saxon times and is a contractual arrangement whereby property is transferred from one person (The Grantor) to another person or corporate body (The Trustee) to hold the property for the benefit of a specified list or class of persons (The Beneficiaries).
Although a trust can be created solely by verbal agreement it is normal for a written document to be prepared which evidences the creation of the trust (the Trust Deed) which sets out the terms and conditions upon which the trust assets are held by the Trustees and outlines the rights of the Beneficiaries. In essence, a Trust is not dissimilar to a will except that assets are transferred to Trustees during lifetime rather than those assets being transferred to executors on death. The Trust Deed is analogous to the deed of will.
The three elements to a Trust Document:
- Grantor
- Trustee
- Beneficiaries

The Grantor in a Trust is the person with the bucks. In other words, the Grantor of a Trust contract is the owner of the asset(s) which could be any asset from personal residential real estate to stock accounts to business or partnership assets and anything else of monetary value. The Grantor’s motivation is to get asset(s) out of his name for either some or all of the following:
- Asset protection and wealth preservation
- Reduce potential frivolous lawsuits
- Elimination of the “probate jail process” (see definition, below)
- Elimination of estate taxes
- To gain some tax benefit or some other tax deferral benefit
If the Grantor initiates the Trust (contract), it’s called a Grantor Trust; otherwise it’s called a Non-Grantor Trust. To me, it’s just legal garbage so lawyers can charge you more.
If the Grantor wants to retain certain control over his asset(s), it’s called a Revocable Trust; otherwise, it’s an Irrevocable Trust.
Revocable Trusts and Irrevocable Trusts have significant asset protection and tax differences. One can think of a Revocable Trust like the kid next door that brings the ball to play basketball with the other kids. Everything is fine, as long as he makes the rules, and he makes the rules as he goes along. If you don’t agree, he takes the ball and goes home. The ball game is over. In the Revocable Trust, he has control and hence the name “Revocable.”