4.26 Ark. Code R. 51-102

Current through Register Vol. 49, No. 10, October, 2024

Rule 4.26-51-102 - Grantor Trust

A trust whereby the grantor retains control over the income or corpus (trust property) or both, to such an extent that the grantor will be treated as the owner of the property and its income for income tax purposes. The general result is that the income from a grantor trust is taxable to the grantor, as "owner" of the trust, and not to the fiduciary. In determining whether a trust is a grantor trust, the grantor's degree of control over the trust must be analyzed.

If a grantor is considered to be the owner of the entire trust, the grantor computes his own personal income tax by taking into account all trust income, deductions and credits as though the trust did not exist. However, where a grantor is treated as owner solely because of his interest in trust income, the grantor takes into account only his share of trust items that would be reported by a current income beneficiary. IRC Reg. 1.671-3.

The grantor of a trust is treated as its "owner" and is generally taxed on its income if:

a) The grantor reserves the power to take back title to (that is, revoke) trust funds for himself where the grantor can exercise this power alone, or it can be exercised only by another who is regarded as a nonadverse party or it can be exercised by both the grantor and nonadverse party together;

b)* The trust income is distributed actually or constructively to the grantor or the grantor's spouse;

c)* The trust income is held or accumulated for future distribution to the grantor or the grantor's spouse;

d)* The trust income is applied to pay premiums on life insurance policies taken out on the life of the grantor or the grantor's spouse.

See IRC Sec. 671 et seq.

*The income is not taxable to the grantor if the application of the income to any of these purposes requires the approval of an adverse party (such as a beneficiary).

4.26 Ark. Code R. 51-102