Who are the parties to a trust?
A Trust is a written instrument giving directions on how Trust property should be held and eventually distributed. A Trust, unlike a Will, is a private document and may be shared only with those persons named in the Trust. For privacy reasons, may people may choose to distribute their property under a Trust rather than a publicly filed Will. The Grantor gives legal title to the trust property to the person known as the Trustee. In most Revocable Trusts, also known as Living Trusts, the Grantor also serves as Trustee as long as he or she is capable of serving. A Trust will name people who are to receive the property or income from the property; these people are the Trust Beneficiaries. The Beneficiaries hold what is known as equitable title to the Trust property. The Trustee, by holding legal title, has the duty to manage and protect the Trust property for the ultimate benefit of the Beneficiaries. For example, John Smith executes a Trust agreement and funds it with ten thousand dollars
Settlor The Settlor is the provider of the funds for investment. Depending upon the type of trust used, a Settlor can be referred to in a variety of legal terms. For example, in SPILA’s Loan Trust, he or she is referred to as the ‘Lender’ and in the Estate Planning Trust as the ‘Donor’. A Settlor can also be a beneficiary of his or her own trust although this would represent a ‘gift with Reservation’ and therefore would generally make the trust ineffective from an Inheritance Tax perspective. Although some of our trusts allow for joint Settlors, this option should only be chosen where both parties are the providers of the funds, or joint policy owners in the case of an existing policy. Trustees Trustees must be at least 18 years of age, of sound mind and not bankrupt. Beyond that, as the name implies, trustees should principally be people whom the Settlor feels can be trusted. All of our trusts automatically appoint the Settlor as a trustee. However, additional trustees could include f
A typical trust is the Family Trust in which the Husband and Wife are the Trustees and, with their children, the Beneficiaries. Those who establish the trust and transfer their property into it are known as Trustors or Settlors. The settlor’s usually appoint themselves as Trustees and they are the primary beneficiaries during their lifetime. After their passing, their children and grandchildren usually become the primary beneficiaries if the trust is to survive, or the beneficiaries receive distributions directly from the trust if it is to close out.
There are typically three main parties to a Trust: (1) The Trust Creator, sometimes called the Grantor or Settler, is the person who started out as owner of the property that is to be transferred to and held by the Trust. (2) The Trustee is the person or financial institution (such as a bank or Trust company) that holds the legal title to the Trust estate. There may be one or more Trustees. If a Trustee is unwilling or unable to serve, then a successor Trustee steps in to hold and manage the Trust estate. The Trustee is obligated to act in accordance with the terms of the Trust for the benefit of the Trust beneficiaries. (3) The Beneficiaries are the persons who the Trust Creator intended to benefit from the Trust estate. The rights of the beneficiaries depend on the terms of the Trust. Beneficiaries are said to have the “equitable title” to the property held in the Trust.
Settlor – the person who creates the trust by transferring property (e.g. a life policy, shares) into it. Beneficiary – the person entitled to the benefit of the trust property. A trust is invalid if there is no certainty as to who the potential beneficiary is (there can be more than one). Trustee – the person who has a duty to look after the trust property. The trustee is the ‘legal’ owner of the trust property, but cannot use it as his/her own personal property. The trustee(s) must look after the trust property in accordance with the conditions set out in the trust and general law. Who Should be a Trustee? In general, there is no restriction on who can be a trustee, except that they must be 18 or over and of sound mind. The settlor can be a trustee and so can a beneficiary although, depending on the particular trust, there may be reasons why either of these options would not be a good choice. Additional Trustees Consideration should always be given to appointing at least one addition
