Updated July 22, 2015
Grantor Trust Chicago Illinois
A Grantor Trust is any trust where the grantor is the effective beneficiary. Income which is attributable to the portion of trust principal treated as owned by the grantor is taxed to the grantor. The trust is disregarded.
A trust is considered a grantor trust when the grantor retains more than a 5% reversionary interest. The grantor is also taxed on income from a trust in which the income may be applied for the benefit of the grantor. Use of income for the support of a dependent is considered the application of income for the benefit of the grantor. However, the income of a trust that may be applied for the support of a dependent is not taxable to the grantor if it is not actually used.
In a grantor trust situation, the grantor or other owners with substantial interest have not given up complete control over the trust property. A such, it is not considered a separate legal entity for tax purposes. The rules in classifying a trust are applied on a year to year basis.
A trust is required to file a return if it has either any taxable income or income in excess of $600.
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Chris Amundson is the President of Accounting Solutions Ltd., a full service public accounting firm of Certified Public Accountants and Enrolled Agents handling the bookkeeping, accounting, tax preparation, and audit representation needs of Businesses, Estates, Trusts, and Upper Income Individuals.