WHAT IS A GRANTOR TRUST?
According to the tax laws, IRC §671-679, a “grantor trust” is any trust in which the Trustor/Grantor retains control over the income or principal, or both to such an extent that he is regarded as the substantial owner of the trust property and income. The power to revoke is a typical retained power that makes a trust a grantor trust. Thus, the typical living trust used in estate planning is a revocable trust and hence a “grantor trust”. The income tax significance is that the taxable income generated by the grantor trust is reported on the income tax return form 1040 of the Trustor/Grantor. Also, the tax due on such income is paid by the Trustor/Grantor on his personal income tax return, form 1040. Thus, a grantor trust does not typically file any income tax return.