Deciding and Converting Between Grantor and Non-Grantor Trust Status: Part IIDeciding and Converting Between Grantor and Non-Grantor Trust Status: Part II

In Part I of this article,¹ we discussed income tax saving opportunities afforded by non-grantor trusts. We’ll now discuss certain disadvantages of non-grantor trusts in both domestic and international contexts. In cross-border situations, the challenge is usually to manage the complexities and avoid traps for the unwary. In the domestic context, often the key is to weigh the short-term income tax benefits a non-grantor trust may yield with the long-term estate tax savings that such a trust may lose (because of the loss of some traditional estate-planning tools available to grantor trusts). Depending on a client’s age, wealth and other factors, the answers can vary. That begs the question of whether one should convert a non-grantor trust...