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 West Virginia, as in all states, grantor trusts are governed by both state trust 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 assets for income tax purposes. The specific rules that classify a trust as a grantor trust are detailed in the Internal Revenue Code (IRC) at 26 U.S.C. §§ 671-677. These sections outline the conditions under which the grantor is considered to retain control or benefit from the trust, such as the power to revoke the trust, to direct the income, or to use the trust assets for personal benefit. If the trust meets the criteria of a grantor trust under these federal statutes, the grantor is responsible for reporting and paying income tax on the trust's income. It's important to note that while the federal law determines the tax treatment of a grantor trust, the creation and operation of the trust itself must also comply with West Virginia's state laws regarding trusts.