Practice Quiz

Financial Planner

Category - Tax Planning

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Your client is considering becoming a trust grantor, but is concerned about tax obligations that they may face; what should the client be informed of?
  1. A grantor trust is treated separately for tax purposes.
  2. The beneficiary pays all tax issues.
  3. A trust grantor may be taxed on its income as the owner of the trust.
  4. There are no tax issues to be concerned with.
Explanation
Answer: C - A client considering becoming a trust grantor should be informed a trust grantor may be taxed on its income as the owner of the trust. A granter trust is no treated as a separate trust for tax purposes, and income from the trust is taxed to the grantor. There are simple and complex trusts and both have a standard deduction of zero.
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