Grantor Trusts
Under the Internal Revenue Code’s “grantor trust”[1] rules, the grantor of a trust may be treated as the “owner” of all or part of the trust. As such, the grantor is taxed on the trust’s income and reports its deductions. That is, trust income and deductions are attributed to the grantor as if he or she owned the trust or a portion of the trust.
If the grantor trust rules apply, the trust is not treated as a separate taxable entity for Federal income tax purposes—at least to the extent of the grantor’s interest. Said another way, the provisions “look through” the trust form and treat the grantor and the trust as one and the same.
Generally, the grantor trust rules apply where the grantor has transferred property to a trust but has not given up sufficient dominion and control over the property or the income that it produces.
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