Detailed Definition
A settlor is an individual or legal entity that establishes a trust by transferring assets to a trustee. The trustee then holds and manages these assets for the benefit of one or more beneficiaries according to the terms set forth in the trust document. The settlor can also be known as the donor, trustor, or grantor.
Trusts can take many forms, including living trusts (created during the settlor’s lifetime) and testamentary trusts (created through a will upon the settlor’s death). The act of creating a trust can have numerous estate planning and tax benefits, including avoiding probate and providing for specific distributions of assets.
Examples
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Revocable Living Trust: John Smith, wanting to simplify the management of his assets while he is alive and after his death, acts as the settlor by transferring assets into a revocable living trust. He retains the ability to modify or revoke the trust during his lifetime.
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Irrevocable Life Insurance Trust: Jane Doe creates an irrevocable trust to own life insurance policies for tax planning purposes. By doing so, the death benefit can be excluded from her estate, potentially saving significant estate taxes.
Frequently Asked Questions (FAQs)
What is the main role of a settlor?
The main role of a settlor is to create a trust by transferring their assets to the trustee. The settlor also sets the terms and conditions under which the trust is managed and distributed.
Can a settlor also be a beneficiary?
Yes, a settlor can also be a beneficiary of the trust, particularly in the case of a revocable living trust.
What happens if a settlor dies?
Upon the settlor’s death, the trust typically becomes irrevocable, and the trustee is then responsible for managing and distributing the trust’s assets according to the settlor’s predetermined instructions.
Is it possible for a settlor to amend a trust?
It depends on the type of trust. In a revocable trust, the settlor can amend or revoke the trust at any time. In an irrevocable trust, the terms cannot be changed once the trust is established, except under specific conditions permitted by law.
What is the difference between a settlor and a trustee?
The settlor is the person who creates the trust, while the trustee is the person or entity that manages the trust’s assets according to the settlor’s instructions.
Related Terms
- Trustee: An individual or organization that holds and administers the assets in a trust for the benefit of the beneficiaries.
- Beneficiary: A person or entity entitled to receive benefits from a trust.
- Revocable Trust: A trust that can be altered or terminated by the settlor after its creation.
- Irrevocable Trust: A trust that, once created, cannot be altered or terminated without the permission of the beneficiaries or a court.
- Probate: The legal process of administering a deceased person’s estate.
- Estate Planning: The process of arranging for the disposal of an individual’s estate, often involving the use of trusts and wills.
Online References
Suggested Books for Further Studies
- “Wills, Trusts, and Estates, Ninth Edition” by Robert Sitkoff and Jesse Dukeminier
- “The Complete Book of Trusts” by Martin M. Shenkman
- “Living Trusts for Everyone” by Ronald Farrington Sharp
- “Make Your Own Living Trust” by Denis Clifford
Fundamentals of Settlor: Business Law Basics Quiz
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