Will That Grantor Trust Pass The SMELL Test?

Do you already have a trust set up? How confident are you that it isn’t a grantor trust?

A valid legal trust requires a minimum of three entities:
1) A grantor/settlor (the entity granting property), 2) at least one trustee (the entity that will be managing and 3) at least one beneficiary (the entities whom the trust is benefiting).

What Is A Grantor Trust?

We shared that 95% of the “sham trusts” prosecuted by the IRS are a result of being a Grantor Trust.

Today we want to go a bit deeper because it’s such a common mistake that people make…

Why are Grantor Trusts Disregarded?

You can’t be the grantor, trustee AND beneficiary because you never relinquished control.

There has to be trust for there to be a trust.

The Control Test (How To Pierce Trusts by Law)
“A Grantor must relinquish control to an adverse party [no family, blood or significant other relations].”Even a boyfriend or girlfriend (straight or gay), even common law partners do not qualify as an “adverse party”.

Further, if a grantor can dismantle a trust, it does not pass The Control Test.

For the courts to see it as valid, the grantor/settlor must relinquish control over the trust.

The Danger of a Grantor Trust is…

Because the law considers grantor trusts to be little more than an “alter-ego” or ‘DBA’ of the grantor, it won’t pass the ‘control test’. Thus won’t hold up in court allowing the trust to be ‘pierced’ and assets to be seized.

Control must ultimately rest with the trustee(s) of the trust.

Have you been operating an invalid trust? It’s best to just scrap it and start fresh. Even if you’ve registered the trust with the Secretary of State, there’s no additional steps to take – simply start over.

Our Recommendations for Trust Parties: Talk with a friend/neighbor to be Grantor, personally serving as Trustee and family as Beneficiaries. As trustee, you can be beneficiary too – so long as you’re not the sole beneficiary.

Now you fully understand what Nelson Rockefeller meant when he famously said: “the secret to success is to own nothing – control everything (as a trustee).”

Your friends in finance,
Private Wealth Academy

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