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 North Dakota, as in all states, grantor trusts are governed by both state law and federal tax law. A grantor trust is defined by the grantor's retention of certain powers or interests in the trust, which results in the grantor being treated as the owner of the trust's assets for income tax purposes. The specific rules that determine whether a trust is a grantor trust are found in the Internal Revenue Code (IRC) at 26 U.S.C. §§ 671-677. These sections detail the conditions under which the income of the trust is taxable to the grantor, such as the power to revoke the trust, to control beneficial enjoyment, or to deal with trust property for less than full and adequate consideration. In North Dakota, the state tax treatment of grantor trusts generally follows the federal treatment, meaning that the grantor may be liable for state income tax on the trust's income to the same extent as for federal income tax purposes. It is important for grantors to understand these rules when establishing a trust, as they have significant tax implications. An attorney with expertise in trust and estate law can provide guidance specific to individual circumstances.