A grantor trust is a trust in which the grantor or settlor (the person creating the trust) retains control over the assets placed in the trust—or the income from the assets placed in the trust—to such an extent that the grantor or settlor is taxed on the trust’s income. For example, a revocable trust (a trust that may be revoked) is a grantor trust.

The controls retained by a grantor or settlor that may result in tax liability for the grantor or settlor are set out in the Internal Revenue Code (IRC), in the United State Code (federal statutes) at 26 U.S.C. §§ 671-677.

In Connecticut, as in other states, a grantor trust is defined by the relationship between the grantor (the person who creates the trust) and the assets within the trust. If the grantor retains certain powers or interests in the trust, such as the ability to revoke the trust or control over the trust's income, the trust is considered a grantor trust for tax purposes. The Internal Revenue Code (IRC) sections 26 U.S.C. §§ 671-677 detail the specific powers and interests that, if retained by the grantor, will cause the trust's income to be taxable to the grantor. This includes revocable trusts, which are a common type of grantor trust where the grantor retains the right to amend or revoke the trust. In Connecticut, the state tax treatment of grantor trusts generally follows the federal tax treatment, meaning that the grantor is responsible for paying state income tax on the trust's income that is attributable to the powers or interests retained.