Overview

In simple terms, a Grantor Trust is a trust in which the grantor, the creator of the trust, retains one or more powers over the trust and because of this the trust’s income is taxable to the grantor.

In some cases, a trust can be treated as a grantor trust when a third person, nonadverse to the grantor, holds an interest or control over the trust that can be attributed to the grantor (ex. the grantor’s spouse). Although a trust may be considered a grantor trust for income tax purposes, it may nonetheless be outside of the grantor’s estate for estate tax purposes (depending on the powers retained by the grantor).