A trust is a grantor trust if the person who created the trust (the "grantor") retains certain powers or ownership benefits. This can apply to the entire trust or only a portion. In general, a grantor trust is ignored for income tax purposes, and all the income, deductions, etc., are treated as belonging directly to the grantor. This also applies to any portion of a trust that is treated as a grantor trust.
A common form of a grantor trust is a revocable living trust. This is an arrangement created by a written agreement or declaration during the life of an individual and can be changed or ended at any time during the individual's life. A revocable living trust is generally created to manage and distribute property. Many people use this type of trust instead of (or in addition to) a will. However, because this type of trust is revocable at any time during the individual’s life, it is treated as a grantor type trust for tax purposes.
How to report a grantor trust in TaxSlayer Pro
A grantor trust return is filed on Form 1041, U.S. Tax Return for Estates or Trusts, via the business program in TaxSlayer Pro. To designate a Form 1041 as being filed for a grantor trust, from the Main Menu of the tax return, (Form 1041) select,
- Heading Information
- Other Information
- Type of Entity - Select Grantor Trust. If only a portion of the trust is a grantor type trust, indicate both grantor Trust and the other type of trust, for example, Simple or Complex trust.
If the entire trust is a grantor type trust:
- Only complete the heading information on the Form 1041.
- Do not make any entries for income or deductions on the form itself.
- Do not enter a beneficiary or produce Schedule K-1 (Form 1041) as an attachment.
- Dollar amounts will be shown on a grantor trust statement attached to the form, as discussed below.
If only part of the trust is a grantor type trust:
- Enter the portion of the income, deductions, etc., that is allocable to the non-grantor part of the trust under normal reporting rules.
- Enter the beneficiary(ies) other than the grantor. Schedule K-1 (Form 1041) will reflect any income distributed from the portion of the trust that is not taxable directly to the grantor or owner.
- The amounts that are allocable directly to the grantor are shown only on a grantor trust statement attached to the form, as discussed below.
Creating the grantor trust attachment in TaxSlayer Pro
To create the grantor trust attachment, from the Main Menu of the tax return, (Form 1041) select
- Miscellaneous Statements
- Grantor Trust Statement Menu - Select New. You will be asked if the grantor is an Individual. If you answer YES the entry screen will be designed for an individual and require Name, Address Social Security Number and grantor’s Income Ownership Percentage. If the grantor is not an Individual, you will answer NO and then be required to provide similar information except you will need the Employer Identification Number (EIN) for the grantor/Entity.
Other Information - Select each line as appropriate, reporting the item in the same detail as would have been reported on the grantor's tax return had it been received directly by the grantor. So, for example, capital gains and losses are entered separately, not netted together; deductions are itemized rather than netted into one entry.
If the entire trust is a grantor trust, the following statement will print on the face of the Form 1041:
"Under the terms of the trust instrument, this is a grantor trust. All income
is taxable to the grantor as set forth under sections 670-678 I.R.C.
A statement of income, deductions, and credits is attached."
Note: This is a guide on entering a grantor trust into the TaxSlayer Pro program. This is not intended as tax advice.
IRS: Instructions for Form 1041 - U.S. Tax Return for Estates or Trusts
Creating a Basic Form 1041- U.S. Tax Return for Estates and Trusts