Which term describes a trust in which the grantor retains power resulting in income attributed to the grantor?

Which term describes a trust in which the grantor retains power resulting in income attributed to the grantor?

• A. Grantor trust
• B. Irrevocable trust
• C. Testamentary trust
• D. Charitable trust

Answer: (A)

When the person who creates the trust retains powers that allow control over the trust or its income, the tax rules treat the trust as owned by that person. In this situation, the trust’s income is attributed to the grantor and taxed on the grantor’s own return, even if the money isn’t actually distributed. That’s why this describes a grantor trust—the grantor’s retained powers cause income to flow through to them for tax purposes. Revocable living trusts are a common example, because the grantor can revoke or alter the trust and directly control assets and distributions. The other options don’t fit because irrevocable trusts typically stand as separate tax entities (unless they’re specifically structured as grantor trusts), testamentary trusts are created at death and are not usually grantor trusts, and charitable trusts follow different tax rules aimed at charity rather than transferring income to the grantor.

When the person who creates the trust retains powers that allow control over the trust or its income, the tax rules treat the trust as owned by that person. In this situation, the trust’s income is attributed to the grantor and taxed on the grantor’s own return, even if the money isn’t actually distributed. That’s why this describes a grantor trust—the grantor’s retained powers cause income to flow through to them for tax purposes. Revocable living trusts are a common example, because the grantor can revoke or alter the trust and directly control assets and distributions. The other options don’t fit because irrevocable trusts typically stand as separate tax entities (unless they’re specifically structured as grantor trusts), testamentary trusts are created at death and are not usually grantor trusts, and charitable trusts follow different tax rules aimed at charity rather than transferring income to the grantor.