Grantor Trust

A Grantor Trust is a trust that has a grantor who retains interest or control of the trust. The grantor is subject to anti-abuse rules that prevent the grantor from taking tax advantage from assets that remain in the control of the grantor.  The grantor is treated as the owner of all or a portion of the trust and is taxed on the trust income even if he or she does not receive the income. Generally, the grantor of a trust would provide his or her own tax information on a withholding certificate, because he or she is treated as the owner of the trust.  Any reportable income paid to a trust would be reported to the grantor.

A U.S. grantor trust must withhold on any income includable in the gross income a of a non-U.S. person that is treated as the owner of the grantor trust, if that income is an amount subject to chapter 3 withholding.  The U.S. grantor trust must withhold at the time the income is received by, or credited to, the trust.

Because a grantor trust is a flow through entity, a non-U.S. grantor trust must provide an intermediary withholding certificate (Form W-8IMY) to any withholding agents that will pay reportable income to its grantor, along with withholding certificates for the grantor and an allocation statement that provides enough information for the withholding agent to report the income on a Form 1042-S.  The non-U.S. simple trust will be responsible for reporting any information not reported by the withholding agent on Form 1042-S (for non-U.S. grantors) or Form 1099 (for U.S. nonexempt recipients that are grantors). A non-U.S. grantor trust does not have to file a Form 1040NR.

Citations:  IRC § 671-678 Treas. Reg. § 1.1441-1 – Requirement for the deduction and withholding of tax on payments to foreign persons. Treas. Reg. § 1.1441-5 – Withholding on payments to partnerships, trusts, and estates. Cite: IRC ss. 671-678 are anti-abuse rules.