What are grantors?
A grantor is a human or institution that provides assets to a trust, regardless of whether they also serve as the trustee—sometimes referred to as the grantor, settlor, trust maker, or trustee.
An option grantor is the seller or writer of call or put options contracts who collects premiums for the options sold. Exchanges sell options to holders who pay the premium.
Knowing Grantors: Trustmakers
The grantor forms a trust, and the beneficiaries get the assets.
The grantor provides trust assets. The trust acquires the property and finances. The grantor may act as trustee to manage the property, although this is unnecessary. A grantor trust is one in which the trustee is the grantor. The grantor funds non-grantor trusts, yet they operate as independent tax entities since they cede asset ownership.
What’s Trust?
Trusts retain money, investments, or property for various reasons. Trust types—testamentary, living (inter vivos), revocable, irrevocable, and others—protect assets differently.
Trusts can streamline asset transfers, reduce probate expenses, reduce inheritance taxes, and promote the intended use of the settlor’s assets. A trust can help a parent prevent a child from wasting an inheritance. At total mental capacity, trusts allow the settlor to decide what should happen to assets in the event of mental impairment or incapacity.
Understanding Grantors: Options Sellers
A grantor, sometimes known as an “option writer,” establishes contracts to sell options on an underlying interest or asset. A grantor may have sold or shorted a call option. Exercise of the call option requires the grantor to sell the shares at the strike price.
Conversely, selling a put option makes the grantor long and requires them to buy the shares at the strike price. Being an option writer is dangerous, especially when the writer lacks custody of the item involved in the contract.
What Are Options Contracts?
Options provide buyers and sellers the right, but not the duty, to buy or sell an asset at a strike price on a specific date. The underlying asset—a stock, ETF, or other financial product—supports these contracts.
The options writer or grantor cannot exercise the option before the contract expires. A grantor can enter into a secondary arrangement with another party to mitigate the obligation’s risk if they expect a loss.
Conclusion
- In a trust, the grantor passes control of assets to a trustee, who administers them for one or more beneficiaries.
- Some trusts make the grantor the beneficiary, trustee, or both.
- Grantors can also be options writers who make a profit selling options.
