What’s the difference between a grantor trust and a non-grantor trust?
- A grantor trust is a trust where the person who created the trust (the grantor) still has some control over the trust’s assets and income.
- This means that the grantor is taxed on the trust’s income, even though the trust is technically a separate entity.
- Grantor trusts are often used for estate planning purposes, because they can help the grantor reduce their taxable income.
- A non-grantor trust is a trust where the grantor has no control over the trust’s assets and income.
- This means that the trust is taxed separately from the grantor, and the grantor does not have to pay taxes on the trust’s income.
- Non-grantor trusts are often used to protect assets from creditors or to provide for beneficiaries after the grantor’s death.
How they are taxed
- Grantor trusts use the grantor’s Social Security Number (SSN) for tax purposes.
- The income of a grantor trust is taxable to the grantor, even if the trust distributes the income to other people.
- Non-grantor trusts have their own Tax Identification Number (TIN) and are taxed separately from the grantor.