Trustor vs. Trustee: Difference between trustee and trustor? (2023)

Trusts are the legal tools that are used to organize a person’s estate. There are several benefits if your estate is organized by a trust which includes control over finances and potential tax benefits. However, trust also entails legal share along with financial complexities.

(Video) Trustor vs Trustee: What's the Difference?

Let’s know what is a trustor? Those having one or more trusts to control their estate matters and properties must know about the involvement of third parties in the trusts i.e., the trustor, trustee, and beneficiaries. Although, every state has diversified estate laws that impose different responsibilities for the process of setting up a trust, overseeing the finances by a trustee, and passing the required finances to the trust.

Moreover, in this article, we will be stating the difference between trustee and trustor.

Trustor vs. Trustee

An individual who establishes the trust is called a trustee. Trustor is also known as settlor, grantor, or creator in many other states. The responsibility of a trustor is to analyze and create parameters around the required trust and assign a trustee to sign the agreement. The trustee will then be liable for managing the property according to the clauses in the agreement. Trustee’s legal obligations advocate him/her to comply with all the applicable state laws relevant to the trust management.

The third-party involved in a trust is the beneficiary. Depending on the cases, there can be multiple beneficiaries of a trust or the beneficiaries as a third party can be changed over time. The trustee is responsible to manage all the matters (either legal or financial) in the best interest of the beneficiary/(ies) adhering to the parameters of the agreement set by the trustor and the estate laws. It is called ‘fiduciary duty.

To have a thorough understanding of trust, trustor, and trustee, scroll down to read further.

Why would someone create trust?

In simpler words, trust can be created:

  • To maintain the financial control of assets in case of incompetence. (Here, incompetence means being unable to manage your finances and assets because of mental conditions or health complications).
  • To save yourself from estate tax liabilities.
  • To successfully avoid the probate process
  • Due to the involvement of a significant amount of finances and assets, trust is formed to manage and control assets even after the owner of the asset dies.

For instance, a trust is created to pay a university tuition fee of a grandchild/ (ren). In this case, the money in the trust can only be used for tuition not for any other purpose, even after the death of the grandparents.

(Video) Trustor, Trustee, and Beneficiary

Determining the type of the trust

As mentioned earlier, the trust can be made to have significant and several purposes which include reducing the estate tax, avoiding probate, and making it possible for your heirs to receive the ownership of your assets as early as possible after your death. To determine what kind of trust you want to make solely depends on the type of benefit you want to take from it.

Types of trust

There are different types of trusts that can be made depending on your goals and the type of assets you want to protect. It is important to know the type because one can meet your requirements even better than the other.

Living trusts

Living trusts are usually made to avoid the probate process, due to the reason that the assets in your trust will no longer be available for your family as they will belong to the trust after your death. When a living trust is established it immediately becomes effective.

Testamentary trusts

A trust that you create in your life but become effective right after your death, is a testamentary trust. When you create a testamentary trust, you, the creator of the trust will be called the ‘testator. These trusts are often formed within the will.

Revocable trusts

In a revocable trust, you are the controller of your trust having the property and assets that can be changed including the beneficiaries and trustees.

Irrevocable trusts

The ownership of property and the assets in the irrevocable trust is given to the trustees and you will no longer be responsible to manage and oversee the property as you don’t own it. This ownership makes you unable to bring any change to the property or the trustee and even the trust.

Who is a trustee?

A trustee is a person responsible to manage, distribute, and invest in the property from the trust. These obligations may include accounting and administration, working and collaborating with the beneficiaries to know the goals of the trust, paying state or federal taxes on behalf of the trust, and managing the financial issues with transparency regarding investments and distributions.

(Video) Grantor vs Trustee

Managing trust assets

The estate laws obligate the trustee for the administration and accounting of the trust. These obligations include filing and paying the tax returns adhering to all the estate applicable to federal laws for trust. The trustee has to keep all the records of transactions.

Investing trust assets

After determining the goals of the beneficiaries about the trust, a trustee needs to decide whether the investment of the capital must be done to earn passive income, to multiply the income keeping the capital within the trust, or make the decisions on other goals that the beneficiaries might have shared.

Distributing the assets

A trustee is compelled to adhere to the instructions engraved in the trust to distribute the property, assets, and the generated income to the beneficiaries in a responsible and timely manner.

Whom can you choose to perform as a trustee?

You can choose a trustee from any of your trusted family members or friends, attorneys, accountants, or bank professionals. Plus, you, yourself can be a trustee.

What is the role of the Successor trustee?

In case if you are naming a single trustee as a primary trustee, make sure to add at least one more trustee as a successor trustee. If the primary trustee is unable to manage your trust for any reason, then the successor trustee will step in and perform the role of a primary trustee.

If you are the trustee of your trust, then you must assign a successor trustee to take over the ownership after your death. This may be helpful in cases of a revocable trust, in which you may likely want to keep yourself as a trustee.

What to look for when choosing a trustee?

You must look for trustees with the following qualities:

(Video) A trust deed simply explained

  • The one who pays attention to details.
  • Understands the duties and nature to perform those duties seriously
  • Understands the rules of estate laws clearly, also the laws for investing, accounting, and distributing demand knowledge and experience.
  • Have good communication skills.

While choosing a trustee for your trust, it is essential to seek help according to the goals and type of the trust which requires special compatibility of a trustee. As such, some may require an experienced trustee with a sound knowledge of accounting and investment, while other types may demand a close relationship with a grantor and even with the beneficiaries.

In most cases, the most suitable person to be selected as a trustee is neither your relative nor your friend, but a colleague or friend whom you believe would be competent, intelligent, and honest. If you wish to appoint a trustee from your family, then it is also possible to specify in your will or the agreement that they hire a professional to aid them on the financial and accounting aspects of the trustee’s responsibilities.

What is the difference between trustee and trustor?

From the above discussion, you may have gotten an idea about the roles of the trustee and the trustor. For a recall, a trustor is the creator of the trust and he or she contributes the assets and property to the trust to gain multiple benefits from the trust.

On the other hand, a trustee manages the assets and property of the trustor and oversees all the legal and financial matters including income tax, bill payments, debts, and distribution of the property.

How to do it? With or without an attorney?

Many online legal services are there that can help you in creating your trust online. After all, making trust deeds involves many financial complications that may be difficult to comprehend easily so you may want to work with an attorney who has been working on estate and trust-related cases. Moreover, if an online service is convenient for you, then it can also be an affordable option to take.

Online: You need to put in your consideration multiple factors while making your trust through online legal service that may include completion of the process and delivery time, cost of the process, and everything that is included in the service offered by the website. For instance. Some online legal service providers prepare and submit your documents to the paralegal services to review them, while other services may want you to do so.

With Attorney: An estate attorney will have experience in dealing with the cases of estate and probate laws, so he will better understand your case and bring out even better solutions if you are facing problems regarding your trust or the trustees.

(Video) What is the difference between a settlor and a trustee? | #AskAmity Episode 111

Get some recommendations from family and friends and talk to the attorney by yourself before hiring one for your case.

FAQs

Why are the trustor and the trustee the same person? ›

The trustee can be the same person as the trustor, which is often the case with a living trust. This is when someone sets up a trust while they're still alive for the purpose of eventually passing on assets to their children or other relatives after the trustor dies.

What is difference between trustee and trustor and beneficiary? ›

Trustee: a person or persons designated by a trust document to hold and manage the property in the trust. Beneficiary: a person or entity for whom the trust was established, most often the trustor, a child or other relative of the trustor, or a charitable organization.

Who has more power a trustee or beneficiary? ›

And although a beneficiary generally has very little control over the trust's management, they are entitled to receive what the trust allocates to them. In general, a trustee has extensive powers when it comes to overseeing the trust.

What is a trustor relationship? ›

The Trustor is the person who initially sets up a Trust. Trustors can be a single person, a married couple or even an organization. They decide how a Trust should be funded (meaning what assets will be held inside it).

Can a trustor become a trustee? ›

Can the Settlor act as sole trustee for the Trust? Yes. It is legally competent for the owner of the property himself to become or to constitute himself as the sole trustee or as one of the trustees.

Can the trust and trustee be the same? ›

Yes, a trustee can be one of the beneficiaries of a trust. For example, an individual could set up a trust, appoint themselves as trustee and distribute income to their family. However, a trustee cannot be the sole beneficiary of a trust.

Who has more power executor or trustee? ›

If you have a trust and funded it with most of your assets during your lifetime, your successor Trustee will have comparatively more power than your Executor. “Attorney-in-Fact,” “Executor” and “Trustee” are designations for distinct roles in the estate planning process, each with specific powers and limitations.

Is a trustee the same as an owner? ›

A Trustee is considered the legal owner of all Trust assets. And as the legal owner, the Trustee has the right to manage the Trust assets unilaterally, without direction or input from the beneficiaries.

Is a trustee always a beneficiary of a trust? ›

The simple answer is yes, a Trustee can also be a Trust beneficiary. In fact, a majority of Trusts have a Trustee who is also a Trust beneficiary. Nearly every revocable, living Trust created in California starts with the settlor naming themselves as Trustee and beneficiary.

Can a beneficiary remove a trustee? ›

The trust instrument may give the beneficiaries specific powers to remove a trustee. If the trust has an appointor, the appointor can remove the trustee and appoint another. However, if a beneficiary is unable to remove the trustee under an express power in the trust or the Trustee Act, the court may be able to do so.

What are the disadvantages of a trustee? ›

What are the Disadvantages of a Trust?
  • Costs. When a decedent passes with only a will in place, the decedent's estate is subject to probate. ...
  • Record Keeping. It is essential to maintain detailed records of property transferred into and out of a trust. ...
  • No Protection from Creditors.
Oct 23, 2020

Can a trustee take money from a beneficiary? ›

The trustee is bound by a fiduciary duty to act in the best interest of the trust and its beneficiaries. This means the trustee can't just use the money or assets in the trust any way they want.

Can a trustor cancel a trust? ›

A settlor can revoke a trust, if the original trust document allows this action. The trust is fully valid. It only comes to an end when the settlor fully revokes it. mistake.

Can my wife be my trustee? ›

Yes, but naming the surviving spouse, as a Trustee should be done only after reviewing all the facts and counseling with your advisors. In a “first time” marriage where both spouses have great confidence in each other, it is common for the surviving spouse to be designated as a Trustee of the Family and Marital Trusts.

What is the difference between a trustee and a co trustee? ›

When there are multiple trustees appointed to manage a trust, they are called co-trustees. A trustee manages and administers a trust, including selling and distributing trust property, and filing taxes for trust income when necessary.

What are the three roles of a trustee? ›

The trustee must distribute the property in accordance with the settlor's instructions and desires. His or her three primary jobs include investment, administration, and distribution. A trustee is personally liable for a breach of his or her fiduciary duties.

Who Cannot be appointed as a trustee? ›

Persons disqualified: Alien enemy, insolvent persons, persons domiciled abroad, a married woman and a minor. Administration: Where the trust involves the receipt and custody of money, there must be at least two trustees.

Is the trustee the legal owner? ›

Trustees. The trustees are the legal owners of the assets held in a trust. Their role is to: deal with the assets according to the settlor's wishes, as set out in the trust deed or their will.

How many trustees must a trust have? ›

Every trust must have at least one trustee. A trustee, in terms of statute, is any person who is authorised by the Master of the High Court (Master) to administer and control the property held in a trust for the benefit of the trust's beneficiaries. The role of a trustee is important.

Who owns the property in a trust? ›

Once a trust is formed and the assets transferred out of the founder's name, the trust owns the assets. Practically, this means that once the founder passes away, the assets in the trust will not form part of the deceased's estate and will not be liable for estate duty.

What does trustee mean in a trust? ›

The trustee acts as the legal owner of trust assets, and is responsible for handling any of the assets held in trust, tax filings for the trust, and distributing the assets according to the terms of the trust. Both roles involve duties that are legally required.

Who is the best person to manage a trust? ›

A corporate trustee such as a bank trust department, a lawyer, or a financial adviser will typically know more about trust management, investments, and taxes than a family member, so a pro can be a good choice if you have a large trust or complex assets in it.

Can a trustee change a will? ›

No. The executors of a will have a duty to act in the best interests of the estate and the people named in it. So, an executor can't change the will without the permission of the beneficiaries.

Who is the best person to be your executor? ›

Most people ask a family member or close friend. You can also appoint a lawyer, a notary public, or a private trust company as executor. The Public Guardian and Trustee may agree to be appointed executor in some circumstances. You can appoint two or more people to act as your executors.

What is the point of being a trustee? ›

Being a trustee means you take responsibility for money that's been put in a trust for someone else. You'll manage the money for them, only use it in their best interest and obey the rules of the trust.

Do trustees have legal title? ›

The trustees have legal title to the assets in the trust and are responsible for administering the trust in accordance with its terms. The beneficiaries are able to benefit from the assets held in the trust.

What is the role of a trustee? ›

A trustee takes legal ownership of the assets held by a trust and assumes fiduciary responsibility for managing those assets and carrying out the purposes of the trust.

Can a trustee withdraw money from an irrevocable trust? ›

The trustee of an irrevocable Trust cannot withdraw money except to benefit the Trust. These terms include paying maintenance costs and disbursement income to beneficiaries. However, it is not possible to withdraw money for personal or business use.

Can a trust have the same trustee and beneficiary? ›

The short answer is yes, a beneficiary can also be a trustee of the same trust—but it may not always be wise, and certain guidelines must be followed. Is it a good idea for a beneficiary to be a trustee? There are good reasons for naming a trust beneficiary as trustee. For one, it is convenient.

What are the benefits of a trustee in a trust? ›

The trustees are the legal owners of the assets held in a trust.
...
Their role is to:
  • deal with the assets according to the settlor's wishes, as set out in the trust deed or their will.
  • manage the trust on a day-to-day basis and pay any tax due.
  • decide how to invest or use the trust's assets.

What happens to beneficiary when trustee dies? ›

When a trustee dies, the successor trustee of the trust takes over. If there is no named successor trustee, the involved parties can turn to the courts to appoint a successor trustee. If the deceased Trustee had co-trustees, the joint trustees take over the trust without involving the courts.

Can an executor be a trustee as well? ›

An executor can also be a trustee, and often, the executors named in Wills are often named as the trustees. It is important that the named executors are clear of the distinction between the roles and the duties that they have.

What assets should not be in a trust? ›

What assets cannot be placed in a trust?
  • Retirement assets. While you can transfer ownership of your retirement accounts into your trust, estate planning experts usually don't recommend it. ...
  • Health savings accounts (HSAs) ...
  • Assets held in other countries. ...
  • Vehicles. ...
  • Cash.
Jul 1, 2022

How much power does a trustee have? ›

The trustee usually has the power to retain trust property, reinvest trust property or, with or without court authorization, sell, convey, exchange, partition, and divide trust property. Typically the trustee will have the power to manage, control, improve, and maintain all real and personal trust property.

Who controls the money in a trust? ›

Trust Funds are managed by a Trustee, who is named when the Trust is created. Trust Funds can contain money, bank accounts, property, stocks, businesses, heirlooms, and any other investment types.

What is the 65 day rule for trusts? ›

Under Section 663(b) of the Internal Revenue Code, any distribution by an estate or trust within the first 65 days of the tax year can be treated as having been made on the last day of the preceding tax year.

Does the trustee monitor your bank account? ›

Yes, it's highly likely that your appointed trustee will check both your personal bank accounts and any business-related bank accounts which you may have under your name.

What a trustee Cannot do? ›

Here is a list of things that the trustee cannot do as far as neglecting the trust is concerned: Mismanage trust assets including bank accounts, stock, bonds, retirement accounts, pensions. Be negligent or careless in investing assets. Sell personal and real property below market price.

Can a house be left in trust? ›

If you inherit a property in a trust

A trust is a way of holding and managing money or property for people who may not be ready or able to manage it for themselves. If you're left property in a trust, you are called the 'beneficiary'. The 'trustee' is the legal owner of the property.

Who owns the property in a revocable trust? ›

There are two important roles in any trust that you should understand before you read on. The trustee is the person who owns the assets in the trust. They have the same powers a person would have to buy, sell and invest their own property.

Does marriage override a deed of trust? ›

What happens if you get married? If a cohabiting couple with a Declaration of Trust gets married, the deed will be superseded by the. Among other things, this act dictates how a court can act in settling a divorce, including what powers the court has to determine how property owned by the married couple is managed.

Why does a trust need two trustees? ›

A single Trustee can be appointed but it is usually recommended that you appoint at least two. Not only does this avoid problems when a single Trustee is unable to conduct their duties, if the trust property includes any land, at least two Trustees will be needed for legal reasons.

Does the 7 year rule apply to trusts? ›

Death within 7 years of making a transfer

If you die within 7 years of making a transfer into a trust your estate will have to pay Inheritance Tax at the full amount of 40%. This is instead of the reduced amount of 20% which is payable when the payment is made during your lifetime.

Can I put my house in trust for my children? ›

Transferring a property into a trust as a gift or to children is a means to securing your assets, but it's important to account for these additional costs. There is a way to avoid inheritance tax in particular, however.

What is the two trustees rule? ›

a conveyance or deed must be made by at least two trustees to overreach any powers or interests affecting a legal estate in land (Law of Property Act 1925 s 2(1)(ii)).

What are the different types of trustees? ›

7 Different Types of Trustees
  • Administrative Trustee.
  • Independent Trustee.
  • Investment Trustee.
  • Successor Trustee.
  • Charitable Trustee.
  • Corporate Trustee.
  • Bankruptcy Trustee.

Can the trustee and beneficiary be the same person? ›

A trust beneficiary can be a person, a company or the trustee of another trust. The trustee may also be a beneficiary, but not the sole beneficiary unless there is more than one trustee.

Can trustees and beneficiaries be the same person? ›

Can a trustee also be a beneficiary? In principle, there is nothing that prevents a beneficiary from being a trustee. However, certain factors may limit this from occurring. For example, the trust deed may state that neither the settlor nor a beneficiary can become a trustee.

Can the trustor be the beneficiary himself? ›

The beneficiary may be the trustor himself or persons other than the trustor, as for example, the trustor's children or favorite charity. Manifest intention to create a trust.

Is it better to be a trustee or beneficiary? ›

The trustee has the power to make management decisions regarding the trust, but the beneficiaries do not wield such power. However, the law gives beneficiaries certain rights, like requesting a trust accounting and receiving assets from the trustee in a timely manner.

Can a family trust have only one trustee? ›

For a trust to be created there must be a settlor, trustee and beneficiary. One person cannot fulfil all of these roles. Trustees. It is possible to include either one corporate trustee or up to three individual trustees.

How long does a trust last? ›

A Trust does not last forever (unless it is for a charity) but rather has a fixed term. This may be set for a specific date or age (so when a child reaches a certain age, for example) or the settlor may give the Trustee the right to terminate the Trust at their discretion.

Do trustees have legal ownership? ›

The trustees are the legal owners of the assets held in a trust. Their role is to: deal with the assets according to the settlor's wishes, as set out in the trust deed or their will.

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