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The Grantor Trust (GT) is an important tool in the wealth transfer arena. It is significant by itself and is also used in a variety of techniques.

In general, an irrevocable trust is a separate taxpayer that files a separate income tax return.  The trust is entitled to a deduction for income distributed to the beneficiaries.  The beneficiaries are usually taxed only on the income distributed to them.  The income that is retained by the trust and not distributed to the beneficiaries is taxed to the trust.

Sometimes the general method of taxation can be altered; involuntarily or voluntarily. Certain provisions in a trust may cause the grantor of the trust to be taxed on all the income of the trust, whether or not the income is distributed to the beneficiaries.  Certain provisions in a trust may cause the assets of the trust to be included in the grantor’s estate at death even though those assets have been irrevocably transferred to the trust.  The rules for taxing the grantor for income tax purposes are not identical to