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 Rhode Island, as in other states, a grantor trust is defined by the relationship between the grantor and the trust's assets or income. 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 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 the owner of the trust for income tax purposes and is thus responsible for paying taxes on the trust's income. This includes revocable trusts, where the grantor maintains the power to revoke or alter the trust. Rhode Island state law will generally follow these federal guidelines for tax reporting and liability purposes, and the grantor must report the trust's income on their personal tax returns if the trust is deemed a grantor trust under the IRC.