Grantor Trust Law and Legal Definition

Grantor trust is a trust whose maker retains control over the management of the trust assets and the distribution of its income. Grantor trusts are not subject to taxation however, a settler is taxed on the trust’s income.

The purpose of a grantor trust is to create an artificial legal person to protect, hold, and manage private wealth for the benefit of heirs.

In the secondary mortgage market and securitized asset sales market, a grantor trust is a legal, passive entity through which pass-through securities are sold to investors.