The topic of Living Trusts can be confusing and complex in nature, especially when it comes to taxation. In this article, I will clarify the way a basic grantor revocable living trust is taxed.
What is a trust?
Understanding a grantor trust is the first point when considering how a trust is taxed. By definition, a trust is an estate planning tool that creates a relationship where three different roles are created. The first role is called the grantor or the trustor. The grantor is the party that creates the trust. The second role is called the trustee. The trustee is the party that holds trust property/assets and manages the trust. The third role is the beneficiary. The beneficiary is the party that benefits from the trust.