The IRS And Abusive Trust Arrangements: Non-Grantor Trusts
Under federal tax law, there are significant differences between grantor and non-grantor trusts. Grantor trusts are treated as disregarded entities...
Under federal tax law, there are significant differences between grantor and non-grantor trusts. Grantor trusts are treated as disregarded entities. In layman's terms, this means that the grantor (i.e., the creator or the settlor) and the grantor trust are one and the same. Accordingly, if the trust generates income, that income is generally reported on the grantor's income tax return. Conversely, if a trust is characterized as a non-grantor trust, the grantor is not subject to income tax—rather, the trust or the trust beneficiary (assuming the beneficiary is different from the grantor) become subject to income tax on the trust's activities.