Understanding Grantor Retained Unitrust (GRUT): Key Legal Insights

Q: Can I change a GRUT once it is established?

No, a GRUT is irrevocable, meaning it cannot be altered after creation.

Q: What happens to the assets if the grantor dies before the trust terminates?

If the grantor dies before termination, the assets may be included in their estate.

Definition & meaning

A grantor retained unitrust (GRUT) is a type of irrevocable trust created by a grantor. In this arrangement, the grantor transfers property into the trust and retains the right to receive annual payments from it. The amount of these payments varies based on the value of the property transferred. Upon the termination of the trust, any remaining assets, along with their appreciation, are distributed to designated beneficiaries. Importantly, if the grantor is alive when the trust ends, the assets and their appreciation are not included in the grantor's estate.

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Legal use & context

GRUTs are primarily used in estate planning and tax strategy. They allow grantors to receive income while potentially reducing their taxable estate. This type of trust is relevant in various legal areas, including estate planning and tax law. Individuals can manage GRUTs with the help of legal forms and templates available through services like US Legal Forms, which provide resources drafted by qualified attorneys.

Key legal elements

Real-world examples

Here are a couple of examples of abatement:

Example 1: A grantor transfers real estate valued at $1 million into a GRUT. They receive annual payments based on the property's value. After 10 years, the property appreciates to $1.5 million, and upon the trust's termination, the beneficiaries receive the appreciated value.

Example 2: (hypothetical example) A grantor places stocks worth $500,000 into a GRUT, receiving annual payments. If the stock value doubles, the beneficiaries will receive the full appreciated amount after the trust ends, provided the grantor is still alive.

State-by-state differences

State	Key Differences
California	GRUTs are commonly used for tax planning but require specific language to ensure compliance with state laws.
New York	State tax implications may differ, affecting the overall benefits of a GRUT.
Texas	GRUTs may offer different estate tax advantages compared to other states.

This is not a complete list. State laws vary and users should consult local rules for specific guidance.

Comparison with related terms

Term	Definition	Key Differences
Grantor Retained Annuity Trust (GRAT)	A trust where the grantor receives fixed payments for a term.	Payments in a GRAT are fixed, while GRUT payments vary.
Revocable Trust	A trust that can be altered or revoked by the grantor.	GRUTs are irrevocable, meaning they cannot be changed once established.

Common misunderstandings

What to do if this term applies to you

If you are considering setting up a GRUT, it's advisable to consult with a legal professional to ensure it aligns with your estate planning goals. You can also explore US Legal Forms for ready-to-use legal templates that can simplify the process. If your situation is complex, professional legal guidance is recommended.

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Quick facts

Type of Trust: Irrevocable
Payment Structure: Annual payments based on property value
Tax Implications: Assets not included in the estate if grantor is alive at termination
Common Uses: Estate planning, tax reduction