Grantor Trust
A grantor trust is a trust where the creator (grantor) retains certain powers or interests that cause the trust income to be taxed to the grantor personally rather than to the trust, making the trust a "disregarded entity" for income tax purposes under IRC Sections 671-679.
Exam Tip
Grantor trust = income taxed to GRANTOR. Key triggers: revocability, reversionary interest >5%. Trust tax rates hit 37% at only $15,650 (2025).
What is a Grantor Trust?
A grantor trust is a trust where the person who created the trust is treated as the owner for federal income tax purposes. All income, deductions, and credits are reported on the grantor's personal income tax return.
Grantor Trust Rules (IRC 671-679)
| IRC Section | Trigger |
|---|---|
| 673 | Reversionary interest >5% value |
| 674 | Power to control beneficial enjoyment |
| 676 | Power to revoke |
| 677 | Income for benefit of grantor |
Types of Grantor Trusts
| Trust Type | Grantor Trust? |
|---|---|
| Revocable Living Trust | Yes |
| IDGT (Intentionally Defective) | Yes (income tax only) |
| GRAT | Yes |
| QPRT | Yes |
Tax Treatment Comparison
| Feature | Grantor Trust | Non-Grantor Trust |
|---|---|---|
| Tax reporting | Grantor's Form 1040 | Trust's Form 1041 |
| 37% bracket (2025) | Over $626,350 (MFJ) | Over $15,650 |
Intentionally Defective Grantor Trust (IDGT)
An IDGT is grantor for income tax but NOT for estate tax - best of both worlds.
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Related Terms
Irrevocable Trust
An irrevocable trust is a legal arrangement where the grantor permanently transfers assets out of their estate into a trust that generally cannot be modified, amended, or terminated, providing potential estate tax benefits and asset protection.
Testamentary Trust
A testamentary trust is a trust created through a last will and testament that does not come into existence until the death of the testator, at which point it becomes irrevocable and must pass through the probate process.