What's the difference between a grantor trust and a non-grantor trust?
Grantor trusts 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. Non-grantor trusts 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.