A trust is a Grantor Trust if the person who created the trust (the 'Grantor') retains certain powers or ownership benefits. This can also apply to only a portion of a trust. 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, which is accessed through 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.
For addition information on accessing a Form 1041 and how to create a return being filed as a Grantor Trust See: Creating a Basic Form 1041- U.S. Tax Return for Estates and Trusts.
If the entire trust is a Grantor Trust, fill in only the entity information on the Form 1041. Do not show any dollar amounts on the form itself, and do not make any entries for the income or deductions on the Form 1041. Instead show the dollar amounts only on an attachment to the Form 1041 as discussed below. Do not use Schedule K-1 (Form 1041) as the attachment.
If only part of the trust is a Grantor type trust, the portion of the income, deductions, etc., that is allocable to the non-grantor part of the trust is reported on Form 1041, under normal reporting rules. The amounts that are allocable directly to the grantor are shown only on an attachment to the form, as discussed below. In this situation, Schedule K-1 (Form 1041) is used to reflect any income distributed from the portion of the trust that is not taxable directly to the Grantor or owner.
How to create the Attachment for a Grantor Trust in TaxSlayer Pro.
The fiduciary must give the Grantor (owner) of the trust a copy of the attachment. To create the 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 and be given the choice of 'YES' or 'NO'. 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.
On the attachment, show the income of the trust that is taxable to the Grantor. Report the income in the same detail as it would be reported on the Grantor's tax return had it been received directly by the Grantor. Also, report any deduction and/or credits that apply to this income in the same detail as they would be reported on the Grantor's return had they been received directly by the Grantor.
NOTE: This is a guide on entering a Grantor Trust into the TaxSlayer Pro program. This is not intended as tax advice.