# Understanding Grantors: Trust Creators and Options Writers Explained

## What Is a Grantor?

A grantor is an individual or other entity that creates a [trust](https://www.investopedia.com/terms/t/trust.asp). They place their assets into the trust. A grantor may also function as the [trustee](https://www.investopedia.com/terms/t/trustee.asp) and may be referred to as the settlor, trustmaker, or [trustor](https://www.investopedia.com/terms/t/trustor.asp).

A grantor can also refer to the seller or writer of either call or put options contracts who collects the premiums for which the options are sold. These are sold through exchanges to option holders who must pay the premiums.

### Key Takeaways

*   A grantor can refer to someone who establishes a trust, transferring control of assets to a trustee for beneficiaries.  
    
*   Grantors can also be options writers, selling options contracts for premiums.  
    
*   Trusts can provide asset protection, minimizing estate taxes and allowing control over asset distribution.  
    
*   An irrevocable trust offers tax advantages and creditor protection as the grantor relinquishes control over assets.  
    
*   Options contracts grant the right, not obligation, to buy or sell an asset at a specified price.

## Understanding Grantors in Trust Creation

The grantor is the person who creates a trust. The [beneficiaries](https://www.investopedia.com/terms/b/beneficiary.asp) are the persons identified in the trust documents to receive the assets it holds.

The assets in the trust are supplied by the grantor. The associated property and funds are transitioned into the ownership of the trust.

> **Important**
>
> The grantor might also be the trustee, managing the trust's property, though this isn't required with all trust types.

The trust is referred to as a grantor trust if the grantor is the trustee. In non-grantor trusts, the grantor funds the trust but gives up control of the assets. This allows the trust to operate as a separate tax entity from the grantor.

### What Are Trusts?

Trusts are designed to hold money, investments, or property for various purposes. Trusts include testamentary, living (inter vivos), [revocable](https://www.investopedia.com/terms/r/revocabletrust.asp), and irrevocable types and protect assets in various ways.

Trusts can facilitate a smooth and speedy transfer of assets upon the grantor's death. They can reduce [probate](https://www.investopedia.com/terms/p/probate.asp) costs, minimize [estate taxes](https://www.investopedia.com/terms/e/estatetax.asp), and ensure assets are used as intended.

A trust can allow a parent to make sure their child doesn’t squander away an inheritance. Trusts allow the settlor to dictate asset distribution in case of future mental disability, assuming they are mentally capable when setting the terms.

## Exploring Grantors in Options Trading

A grantor is also synonymous with "option writer." A grantor in this context creates contracts for selling options for an underlying interest or asset. A grantor may have sold a call option or assumed a short position in a call option. The grantor has to sell the underlying stock at the [strike price](https://www.investopedia.com/terms/s/strikeprice.asp) if the [call option](https://www.investopedia.com/terms/c/calloption.asp) is exercised.

Conversely, the grantor is said to be long and must purchase the underlying stock at the strike price if they sell a [put option](https://www.investopedia.com/terms/p/putoption.asp). Serving as an option writer is relatively risky, especially in a [naked position](https://www.investopedia.com/terms/n/nakedposition.asp) when the writer doesn't have possession of the asset involved in the contract.

### What Are Options Contracts?

Options are contracts giving buyers and sellers the right, but not the obligation, to buy or sell an asset at a set price on a specific date. This price is known as the strike price. These contracts are supported by the presence of the underlying asset, which may be composed of a particular stock, an exchange-traded fund (ETF), or other applicable financial products.

The options writer, or grantor, cannot decide if the option is exercised before it expires. If a grantor expects a loss, they can enter a secondary deal with another party to reduce risk.

## What Is an Irrevocable Trust?

An irrevocable trust requires the grantor to step aside after the trust is formed and funded with property and assets. The grantor cannot act as trustee and cannot reclaim the property funded into the trust. They can't change any of its terms, including its named beneficiaries. As the name implies, the trust cannot be revoked for any reason.

But these restrictions come with some significant advantages, particularly for the wealthy. The property in the trust isn't subject to estate taxes upon the death of the grantor because the grantor has given up ownership of those assets. They no longer contribute to the value of their estate. These trusts also provide protection from creditors.

## How Can a Trust Stop Someone From Squandering an Inheritance?

A trust that can safeguard an inheritance is referred to as a spendthrift trust. It contains provisions that prevent a potentially spendthrift beneficiary from taking their entire inheritance at once and wasting all the money or assets. The trust apportions bequests in smaller increments, typically over a period of years. The beneficiary doesn't have a great deal of money to spend or waste at any particular time.

These trusts can also offer some protection from creditors.

## What's the Difference Between a Call Option and a Put Option?

Options are contracts. A call option gives a buyer a contractual right to buy a security at a specific "strike" price. A put option is effectively the flip side, giving the buyer of a security the right to sell it, again at its strike price. A grantor in the context of investments writes or creates these options.

## Summary of Grantor Roles and Responsibilities

There are two types of grantors. One funds a trust as part of an estate plan and may or may not retain the reins to and ownership of the assets placed into it. The other type of grantor works in an investment capacity. They write call or put options contracts and collect premiums when the options are sold. Both roles require high integrity, but their duties differ greatly.

> **Article Sources**
>
> 1.  National Council on Aging. "[Living Trust vs. Will: Key Differences](https://www.ncoa.org/adviser/estate-planning/living-trust-vs-will/#:~:text=The%20main%20purpose%20of%20a,and%20time%2Dconsuming%20probate%20process.)."
>     
> 2.  U.S. Securities and Exchange Commission. "[Investor Bulletin: An Introduction to Options](https://www.sec.gov/oiea/investor-alerts-bulletins/ib_introductionoptions)."
>     
> 3.  Cornell Law School Legal Information Institute. "[Irrevocable Trust](https://www.law.cornell.edu/wex/irrevocable_trust#:~:text=Irrevocable%20trust%20refers%20to%20any,to%20shield%20assets%20from%20creditors.)."
>     
> 4.  New York City Bar Association. "[Spendthrift Trust](https://www.nycbar.org/get-legal-help/article/wills-trusts-and-elder-law/trusts/spendthrift-trust/)."
>     
> 5.  United States Office of Government Ethics. "[Call or Put Option (Written)](https://www.oge.gov/Web/278eGuide.nsf/Content/Definitions~Put+or+Call+Option+%28written%29)."