Grantor Trust Basics

Grantor trusts is a classification of trusts which means that for income tax purposes the trust is ignored. It is treated as one and the same as the person deemed to be the grantor. If you create a revocable trust and transfer assets to it, you’re the grantor and the income the trust receives will be reported on your personal income tax return. A more complex trust called a Beneficiary Defective Trust (BDT), or a Beneficiary Defective Irrevocable Trust (BDIT) is a trust in which, for example, a parent sets up a trust for a child, and makes a $5,000 gift. The child is given the right to withdraw that $5,000 gift (its actually much more complex) and because of that the child is deemed to be the grantor. With a grantor trust should you use your Social Security Number (SSN) on the trust or get a separate trust Taxpayer Identification Number (TIN)? The tax regulations provide detailed examples and explanations of how the choice of SSN vs. TIN, what information is given to account owners (e.g. the brokerage firm where trust accounts are located), tax reporting, etc. all interact. There can be an advantage to using a TIN as it may make identity theft or elder abuse more difficult since the assets will be under a different identification number then your SSN. In some cases the trust will be required to file an income tax return. But, in many but not all cases you might benefit from having the trust file a grantor trust income tax return. This will formalize the administration of the trust and document that you are treating the trust as an independent entity for legal purposes even if it is disregarded for tax purposes. That grantor trust income tax return may be a simple return that indicates that all of the trust income and expenses are reported on your personal return.