When Is an Irrevocable Trust a Grantor Trust
An irrevocable trust can become a grantor trust if the trust meets certain IRS requirements. If any of these requirements are met, the trust will no longer be considered a separate tax entity and the grantor is taxed on trust income.
1. The Grantor Maintains a Reversionary Interest
2. The Grantor Has the Power to Control Beneficial Enjoyment
3. The Grantor Maintains Administrative Control
4. The Grantor Maintains Revocation Powers
5. The Trust Distributes Income to the Grantor
6. Any Powers Are Held by the Grantor's Spouse - A grantor's spouse is deemed to have the same powers and beneficial interests as the grantor under IRC Section 672(e). This means that a grantor cannot evade IRS rules regarding what constitutes a grantor trust by granting any of the above-prohibited powers or interests in a trust to his or her spouse.