Estate Planning · Haute Lawyer Network
What Is a Grantor Trust?
Last reviewed: June 2026
A grantor trust is a trust in which the grantor — the person who created and funded the trust — retains enough control or beneficial interest that the Internal Revenue Code treats the trust's income as the grantor's income for tax purposes.
The trust is ignored for income tax purposes — all income, deductions, and credits pass through to the grantor's personal tax return.
Grantor trust status can be created intentionally (a "deliberately defective grantor trust") as part of sophisticated estate planning or unintentionally if the grantor retains powers that trigger grantor trust rules.
Intentional grantor trusts are used in estate planning because: the grantor pays the income tax on trust earnings — effectively making a tax-free gift to the trust by reducing the estate while growing the trust's assets; trust sales can be made to the trust without recognizing gain; and swapping assets in and out of the trust is possible.
Frequently Asked Questions
Why would someone want a grantor trust?
In estate planning, paying income tax on trust earnings is a gift to the trust beneficiaries — it reduces the grantor's estate without using gift tax exemption, while the trust's assets grow untaxed. This is the core benefit of "intentionally defective grantor trusts" (IDGTs).
What makes a trust a grantor trust?
The grantor retaining certain powers — such as the power to substitute assets, borrow from the trust, or control beneficial enjoyment — causes the trust to be treated as a grantor trust for income tax purposes.
Is a grantor trust also excluded from the estate?
Not necessarily. Grantor trust status for income tax purposes and estate inclusion are determined by different rules. An intentionally defective grantor trust is designed to be a grantor trust for income tax but excluded from the estate for estate tax purposes.
What happens when a grantor trust loses its grantor trust status?
The trust is treated as a separate taxpayer going forward and files its own tax return. Trust-level tax rates are much more compressed than individual rates — trusts reach the highest federal rate at much lower income levels.
Can a non-grantor trust become a grantor trust?
Yes, if the trustee or a trust protector is given powers that trigger grantor trust treatment, or if assets are transferred to the trust on terms that create grantor trust status.
Related Questions
Are you an Estate Planning attorney?
Join Haute Lawyer Network and have your profile featured alongside these answers.
Apply for Membership →This information is provided for general informational purposes only and does not constitute legal advice or create an attorney-client relationship.