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 York, 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. The key federal regulations governing grantor trusts are found in the Internal Revenue Code (IRC) at 26 U.S.C. §§ 671-677. These sections detail the specific powers and controls that, if retained by the grantor, will lead to the grantor being taxed on the trust's income. This includes revocable trusts, which are a common form of grantor trust where the grantor retains the right to revoke or amend the trust. New York follows the federal treatment of grantor trusts for state income tax purposes, meaning that the income of a grantor trust is taxed to the grantor rather than to the trust itself.