Question

1. What is the difference between a simple and a complex trust?
2. What is a grantor trust?

Answer 1

Simple Trust

• A simple trust is a type of trust where beneficiaries are only given any accumulated interest from a trust fund account until a predetermined time period has passed.
• It is governed by the terms and conditions of the trust agreement.
• All the details about provision ,distribution and management of the trust property including the responsibilities of everyone involved are all contained in the trust agreement's terms and conditions.
• Setting up a simple trust is usually less expensive because the trustee's work is clear cut and simple.
• A simple trust is requirred by the fedral income tax law to distribute all net income from the trust property on a yearly basis.

Complex trust

• A complex trust is any trust agreement that falls outside the scope of a simple trust.
• A trustee in a complex trust can distribute the funds to the benificiaries which may include charitable organizations as long as it is allowed by the trust agreement.
• The trustee play an important role in managing the property assets on behalf of the trust beneficiaries.
• Estate properties are often transferred into a complex trust.
• Estate management responsibilites include estate Tax payment,bill payments and maintenance expenses.

Difference

	Simplex Trust	Complex Trust
1	Beneficiaries receive principal and accumulated interest until specified time had passed	Beneficiaries may receive principal and interest but are subject to terms and conditions of trust agreement
2	Less expesive	Expensive
3	Trustee’s only job is to make sure distribution of trust assets happen at a specified time.	Trustee oversees management of the trust property
4	All net income generated by the trust property is distributed on a yearly basis	It may retain income from investments but the funds may be distributed as long as the terms and conditions of the trust are met

Grantor Trust

• A Grantor Trust is a trust in which the grantor, the creator of the trust, retains one or more powers over the trust
• A third person, nonadverse to the grantor, holds an interest or control over the trust that can be attributed to the grantor.
• The grantor, not a beneficiary, is taxed on all the trust's income, even though he or she is not entitled to any trust distributions.
• Grantors can also change the beneficiaries of a trust along with the investments and assets .
• Due to all powers retained by the grantor, the trust is treated as a Grantor Trust for income tax purposes.
• Grantor Trusts are a valuable estate planning tool, with revocable trusts being by far the most common type, and can offer significant possibilities for estate or gift tax savings.