Trustor vs. Trustee: What do you need to know about them

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.

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. 

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.

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:

• 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.

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