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 Washington state, a grantor trust is defined by the extent of control the grantor retains over the trust's assets or income. If the grantor retains certain powers or benefits, such as the ability to revoke the trust or direct the use of trust income, they may be subject to income tax on the trust's earnings. This is in line with federal tax law, specifically the Internal Revenue Code (IRC) sections 671 through 677. These sections detail the various powers and interests that, if retained by the grantor, will classify the trust as a grantor trust for tax purposes. This means the income generated by the trust is treated as the grantor's for income tax purposes, and the grantor must report it on their personal tax return. It's important for individuals in Washington creating such trusts to consult with an attorney to understand the tax implications and ensure compliance with both state and federal regulations.