What happens to the trust assets if the grantor survives the trust term?

When the grantor of a trust survives the trust term, the trust assets are included in the grantor's gross estate for estate tax purposes. This inclusion means that, upon the grantor's death, the total value of the trust assets will be subject to estate taxes, just as though the assets were part of the grantor's personal property.

This outcome occurs because the grantor retains certain powers or benefits over the trust assets during their lifetime, which results in the assets being treated as part of the grantor's estate. Therefore, even though the trust assets may have been designated for beneficiaries, the IRS considers them part of the grantor's estate when determining tax liability after death.

In contrast, the other options do not accurately reflect the treatment of trust assets in this scenario. Automatic transfer to beneficiaries can only happen if the grantor has passed away, not during their lifetime. Liquidation for tax purposes is not a requirement unless specific conditions necessitate it, and trust assets are not exempt from all taxes; they may still incur taxes based on the structure of the trust and the nature of the assets involved.