A grantor substitution power is the right of the grantor, in a non fiduciary capacity, to swap trust assets for assets of equivalent value under 675(4)(C). Properly drafted, the power causes grantor-trust treatment for income tax without pulling assets into the estate. Substitution lets the grantor move high-growth assets into the trust and low-basis assets out, optimize income taxation,and manage risk-subject to fiduciary safeguards and valuation parity.

Advisors implement substitution powers in IDGTs so the grantor can swap assets with the trust equal value, moving high-growth positions in and low-basis assets out. Trustees require valuations and fiduciary safeguards before approving.