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 Wyoming, 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 conditions under which the grantor is considered to retain ownership for tax purposes, such as the power to control beneficial enjoyment, the ability to revoke the trust, or the use of trust income to pay premiums on life insurance policies on the grantor's life. It's important to note that while the federal law provides the framework for taxation of grantor trusts, the trust's administration and the implications for state law must also be considered. An attorney can provide guidance on how these rules apply to a specific trust in Wyoming.