global Tax What Happens to a Grantor Trust When a Grantor Dies? July 09, 2025 When a grantor dies, managing a trust can be complex. This blog explains key differences between revocable and irrevocable grantor trusts after death and the steps trustees must take to manage the transition smoothly and avoid costly mistakes. When the grantor of a trust passes away, important changes take effect that impact how trust assets are handled. Trustees suddenly face new responsibilities, from notifying beneficiaries to settling debts and distributing assets. Proper administration is critical to avoid tax risks, creditor claims, and legal complications. This blog explains what happens to revocable and irrevocable grantor trusts after a grantor’s death and outlines the key steps trustees must follow to manage the transition effectively.Quick Takeaways:Revocable trusts become irrevocable at death and pass assets to beneficiaries per the trust terms.Irrevocable trusts remain outside of the grantor’s taxable estate.Trustees must follow key steps: notify beneficiaries, inventory assets, settle debts, and distribute funds.Proper administration protects the trust from tax risks and legal complications. “The trustee’s role becomes incredibly important the moment the grantor passes away. A clear understanding of the trust’s terms and timely action can help avoid family conflict, tax missteps, and delays in distribution.” Kristin Kelley Who Is the Grantor of a Trust?The grantor (also known as the settlor, trustor, or trust maker) is the person who creates the trust. Grantors decide the trust type, appoint a trustee, name beneficiaries, and fund the trust with assets. In revocable trusts, the grantor can often serve as the trustee and maintain control during their lifetime.Understanding Revocable Grantor TrustsWhat is a Revocable Trust?A revocable trust (also known as a "living trust") becomes effective when signed. The grantor typically manages the assets during their lifetime, and retains the ability to amend or revoke the trust.What Happens When the Grantor Dies?Upon the grantor’s death:The trust becomes irrevocable.Trust assets are included in the grantor’s taxable estate.The trustee takes over and distributes assets to beneficiaries as outlined in the trust document.Understanding Irrevocable Grantor Trusts (also referred to as Income Tax Defective Grantor Trusts)An irrevocable grantor trust cannot be changed or revoked once created. The grantor gives up ownership of the assets transferred to the trust. For income tax purposes, the grantor is responsible for paying taxes on trust income during their lifetime.What Happens When the Grantor Dies?Trust assets remain outside the grantor’s taxable estate.The trust is administered by a successor trustee.Most attorneys advise against naming the grantor as trustee to avoid jeopardizing estate tax protections.7 Steps to Administer an Irrevocable Grantor Trust After Death1. Notification of DeathThe trustee or executor must notify beneficiaries and obtain a certified death certificate.2. Trust AdministrationFollow the instructions in the trust document. The trustee assumes responsibility for managing and distributing assets.3. Inventory of Trust AssetsDocument and account for all trust assets—real estate, investments, bank accounts, personal property.4. Notifying CreditorsNotify known creditors and publish notice, allowing time for claims to be submitted.5. Asset ValuationIf equal distributions need be made or there is more than one beneficiary - Obtain appraisals or valuations for real estate and significant assets.6. Settling Taxes and DebtsPay any outstanding debts and file required tax returns for the deceased and the trust.7. Asset DistributionDistribute remaining assets per the terms of the trust once all obligations are met.Wondering how the step-up in basis applies to assets inside the trust? Check out our blog, IRS Clarifies Step Up in Basis Rules for Grantor TrustsFrequently Asked Questions about Grantor Trusts1. Does a grantor trust automatically become irrevocable when the grantor dies? No. The trust continues but becomes irrevocable and a new EIN may need to be applied for. Assets are distributed based on the trust terms.2. Are assets in a grantor trust taxable at death? Assets in revocable trusts are taxable in the grantor’s estate. Irrevocable trust assets generally are not.3. Who files taxes for the trust after the death of a grantor? The trustee is responsible for the decedent’s final tax return and fiduciary returns for the trust. 4. Can creditors access trust assets? Creditors can access revocable trust assets. Properly structured irrevocable trusts generally offer protection.Proper trust administration is essential to protect trustees and beneficiaries and ensure compliance with tax and legal requirements.
