TCP Trust Planning · Updated November 2026
Grantor Trust or Nongrantor Trust: Who Pays the Income Tax?
Income-tax ownership and legal trust ownership are not always the same thing.
Grantor trust
Applicable retained powers or interests can cause the grantor to be treated as the owner for federal income tax purposes.
Nongrantor trust
A nongrantor trust can be a separate taxable entity, with taxation depending on retained income, distributions, DNI, and beneficiary treatment.
Estate planning distinction
Income-tax ownership and estate-tax inclusion are related but not identical concepts.
Exam strategy
Identify whether grantor-trust rules apply before calculating trust-level and beneficiary-level taxation.
The takeaway
Grantor trust rules can shift income taxation back to the grantor. A nongrantor trust generally operates as a separate tax entity.
Related Summit guides
FAQ
Can a grantor trust still have a trustee?
Yes.
Does a nongrantor trust automatically avoid all tax?
No.
Does DNI matter for nongrantor taxation?
Yes.