Get Your Free Financial Score →Sign InYour data on this device
Free · Open access · No sign-up required
LearnFAQEstate Planning

What's the difference between a grantor and a non-grantor trust?

Answer

The difference is who pays income tax on the trust's earnings. In a grantor trust, the person who created it (the grantor) is treated as the owner for income tax purposes and reports the trust's income on their personal return – even if the trust is irrevocable. This is often intentional: paying the trust's taxes lets the trust assets grow undiminished, effectively an extra tax-free gift to beneficiaries, which is why "intentionally defective grantor trusts" are a popular wealth-transfer tool. In a non-grantor trust, the trust is its own taxpayer with its own tax ID and return; it pays tax on retained income and reaches the top federal bracket at a very low income level (a few thousand dollars), so undistributed income is taxed steeply. The right choice depends on your goals, and the rules are intricate – this is attorney-and-CPA territory, not a DIY decision.

← All FAQsMore Articles →

Educational disclaimer: All content on WealthSerene.com is for educational purposes only and does not constitute investment advice. Projections and calculations are illustrative — actual results will vary based on market conditions, your specific situation, and many factors outside this tool’s scope. Always consult a qualified financial professional for advice specific to your situation. View full disclosures →