A grantor trust means that the person who creates it is still responsible for estate tax and income tax purposes. The grantor also maintains control over the trust, including the income, the benefits, and the assets. Because of this power to control elements of the trust, the owner is also responsible for the income taxes linked to it.
All revocable living trusts are grantor trusts during the owner’s life. An irrevocable trust could even be considered a grantor trust if the owner meets IRS requirements for becoming the official owner of the assets. Depending on the structure, an irrevocable trust could also be set up to split the income taxes from the estate taxes. This is known as an “intentionally defective grantor trust”.
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