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 New Mexico, 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 benefits, 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. This means that the income generated by the trust's assets is taxable to the grantor rather than to the trust itself. The specific rules governing what constitutes a grantor trust are detailed in the Internal Revenue Code (IRC) at 26 U.S.C. §§ 671-677. These federal statutes outline the various controls and powers retained by the grantor that can lead to the grantor being taxed on the trust's income. It's important for individuals in New Mexico to consult with an attorney to understand how these rules apply to their particular situation and to ensure compliance with both federal tax law and any relevant state laws regarding trusts.