Trustor

Definition

A trustor is an individual or entity that establishes a trust by transferring assets into it for the benefit of one or more beneficiaries. The trustor, sometimes referred to as the settlor or grantor, is responsible for creating the trust agreement, which outlines how the assets are to be managed and distributed. The trust agreement names a trustee, who will manage the assets according to the terms specified by the trustor, and the beneficiaries, who are entitled to the benefits of the trust.

Examples

1. Estate Planning: John Doe creates a living trust and transfers his property into the trust. John, as the trustor, names himself as the trustee and his children as beneficiaries. Upon his death, the property is managed by a successor trustee and distributed to his children, avoiding probate.
2. Charitable Trust: Jane Smith, a philanthropist, sets up a charitable trust to support educational institutions. As the trustor, Jane places assets into the trust to be used for scholarships and educational grants, with a nonprofit organization named as the trustee.
3. Irrevocable Life Insurance Trust (ILIT): Mark creates an ILIT to remove his life insurance policy from his taxable estate. As the trustor, he transfers ownership of the policy to the trust, with his spouse and children named as beneficiaries. The trust ensures that the insurance proceeds are distributed according to Mark’s wishes without incurring estate taxes.

Frequently Asked Questions

1. What is the difference between a trustor and a trustee?

   • A: A trustor is the person who creates and funds the trust, while the trustee is the individual or entity responsible for managing the trust assets and executing the terms of the trust agreement.

2. Can a trustor also be a trustee?

   • A: Yes, a trustor can serve as the trustee of their own trust, particularly in revocable living trusts, allowing them to manage their assets during their lifetime.

3. What are the responsibilities of a trustor?

   • A: The trustor is responsible for defining the terms of the trust, funding the trust with assets, and naming the trustee and beneficiaries. The trustor may also modify or revoke the trust, depending on its terms.

4. What happens if the trustor dies?

   • A: If the trustor of a revocable trust dies, the trust typically becomes irrevocable, meaning its terms cannot be changed. The trustee will then manage and distribute the assets according to the trust agreement.

5. Can a trustor remove assets from a trust?

   • A: In a revocable trust, the trustor can remove assets at any time. However, in an irrevocable trust, the trustor generally cannot remove or alter the trust assets without the permission of the beneficiaries or a court.

Related Terms

• Trust: A fiduciary arrangement that allows a third party, or trustee, to hold assets on behalf of a beneficiary or beneficiaries.
• Trustee: An individual or entity responsible for managing the trust assets according to the terms specified by the trustor.
• Beneficiary: A person or entity entitled to receive the benefits from the trust assets as specified by the trust agreement.
• Revocable Trust: A trust in which the trustor retains the ability to modify or revoke the trust during their lifetime.
• Irrevocable Trust: A trust that cannot be modified or terminated by the trustor once it has been created, without the consent of the beneficiaries.

Online References

• Investopedia on Trustor
• Wikipedia on Trust Law
• IRS Guidance on Trusts

Suggested Books for Further Studies

• “Living Trusts for Everyone: Why a Will Is Not the Way to Avoid Probate, Protect Heirs, and Settle Estates” by Ronald Farrington Sharp
• “Trusts and Estates (Concepts and Insights)” by Sherwin B. Tarnow
• “Make Your Own Living Trust” by Denis Clifford
• “Estate Planning Basics” by Denis Clifford

Fundamentals of Trustor: Estate Planning Basics Quiz

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