If you are in the process of setting up an estate plan, you have many different options to consider. You need to think about your individual circumstances as well as the unique needs your loved ones have. Some people create a will, while others come to the conclusion that a trust is more practical. Moreover, there are many different types of trusts.
For some people, grantor trusts make more sense than other types of estate plans. If you are considering a grantor trust, review the benefits of this strategy and how these trusts work.
Going over the benefits of grantor trusts
According to the New Jersey Division of Taxation, there are a number of factors to take into consideration with regard to grantor trusts. This option lets individuals who set up a trust retain control over the trust’s income and assets on behalf of beneficiaries. If you create a grantor trust, the state considers you the owner of the property and you must pay taxes.
Grantor trusts can minimize tax burdens for beneficiaries and help you safeguard your assets. However, it is important to ensure that you have the resources to take care of tax obligations that arise.
Taxes and grantor trusts
The Division of Taxation reports that if you set up a grantor trust, you have to file Form NJ-1041. You will have to report all of the trust’s income and various details, such as your name, identification number and address on the beneficiary’s share of income. Income earned from the trust counts as your own income as opposed to income from a trust or estate.