Trustor Vs Trustee
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“Regarding financial and estate planning, trusts are a useful tool that allows your family to set assets aside to pass on after your death. In addition, trusts could save your family the headache of probate. Some language surrounding trusts can confuse those who need to be fully fluent in estate planning.”

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Trustor Vs Trustee

Although trustors and trustees sound similar, they are somewhat different. Although the trustor and trustee can be the same individual, this is only sometimes the case. The trustor forms the trust while the trustee manages it. Consult a local financial advisor for trust assistance—trustor vs trustee or other financial topics.

 

Basics of living trusts

Living trusts are legal tools that allow people to manage their assets during their lifetime and after death. It is also possible to qualify for Medicaid payment of long-term health care with a living trust if it is irrevocable, even though they are primarily used to avoid probate and minimize taxes.

Identical to a corporation, a trust is a separate entity from the creator, or trustor, who holds title to the property. The trust also has its federal tax identification number and files tax returns.

Three types of parties are involved in a trust:

  • Trustor: Trustors are typically individuals or married couples that establish a trust. Grantors and settlers are also common names for trustors.
  • Trustee: An individual or group designated by a trust document to hold and manage trust properties.
  • Beneficiary: Beneficiaries are usually the trustor, their children, other family members, charities, or the trust. It is possible, and often is, to have more than one beneficiary.

To create a trust, the trustor transfers property to the trustee, who holds the assets and manages them to benefit the beneficiaries. The trust agreement outlines the guidelines the trustee must comply with.

 

Various Types of Trusts

Trusts are legal frameworks that can hold assets and property, generally to be part of an estate plan. However, there are several types of trusts, each with advantages and disadvantages. Two types of trust are most common:

  • Revocable trust: When you are alive, you can dissolve the trust or remove some of its assets from it, so it is sometimes called a revocable living trust. You must be able to make changes in this situation because you may be both the trustee and the trustor. You can easily remove an asset from a revocable trust if you leave it to someone after your death but later sell it.
  • Irrevocable trust: The name suggests that irrevocable trusts are rigid. They are indivisible and unable to be dissolved. This protects assets from creditors, but you should be sure you want these.

It is also possible to create and manage special trusts of various types, such as marital trusts, bypass trusts, generation-skipping trusts, charitable trusts, special needs trusts, and spendthrift trusts, among others. Although each trust has its particular purpose, it is still created and managed by a trustor and a trustee, respectively.

 

Trustors: What Are They?

Trustors can include individuals or organizations. Some states refer to trustors as grantors or settlers. Trustors can create trusts for one or more beneficiaries.

Most often, the trustor is responsible for setting up the trust and putting assets into it (known as funding the trust). Additionally, they will choose the trust’s beneficiaries (the people or organizations that will receive the trust’s assets), set the trust’s guidelines, and select trustees. An agreement of trust, or declaration of trust, contains all this information.

 

Roles of Trustors

In creating a trust, the trustor has several responsibilities, including:

 

Appointing a trustee:

Trustors can either nominate someone to oversee the trust or elect trustees themselves, depending on the type of trust they create.

In case they become incapacitated (meaning they are unable to take care of themselves) or pass away, if they decide to serve as trustees, they must appoint a successor trustee to administer the trust.

 

Determining the terms of the trust:

In creating a trust, the trustee can also specify the terms and conditions, including which assets will fund the trust and when the funds will be distributed to beneficiaries, for example, upon reaching a certain age or attaining a significant life milestone.

 

Designating beneficiaries:

The trustees are responsible for selecting each trust asset’s beneficiaries. These beneficiaries can include loved ones, friends, or even nonprofit organizations.

 

Allocating assets:

Trustors can choose who should benefit from the trust. They can also decide how to handle or distribute the trust’s assets. They also determine what each beneficiary receives.

The trustor may, for example, want to sell their real estate property to pay for the college tuition of a beneficiary, or they may like to gift specific items from their jewelry collection to specific grandchildren after they pass away.

 

Trustee – What Is It?

The trustees are responsible for managing a trust created by a trustor. An entity or organization can serve as a trustee, person, or multiple people. They can also serve as trust beneficiaries (sometimes even the trustor). In the declaration of trust, the trustor identifies the trustee and their duties.

 

Trustee – What Is It?

 

When a trustee begins and ends their duties, it depends on the type of trust created and the terms outlined in the trust documents. When appointed, they may immediately assume responsibility for the trust. Alternatively, they may wait for a specific event, like the trustor’s death.

 

Duties of Trustees

The trustee’s responsibilities include following the trustor’s instructions. They also include managing the trust as outlined in the deed.

The trustee also assumes fiduciary responsibility for the trust. This means they are legally required to act in the best interests of the beneficiaries. They may be held liable or removed if they fail to work in that manner. Trustee duties may also include the following, depending on the type of trust:

 

Handling day-to-day oversight:

The trustees oversee the general administration, whether handling daily tasks (like keeping records) or long-term actions (such as paying ongoing bills and taxes).

 

Distributing assets:

If the trustor becomes incapacitated, the trustees may be responsible for distributing the trust’s assets to beneficiaries. If the trustee becomes incapacitated, the declaration of trust may instruct them to use the assets for bills, taxes, or ongoing medical expenses.

 

Paying taxes:

Property within trusts may require trustees to file and manage taxes.

 

Taking care of specific bills:

As part of their duties, the trustee can also deal with other bills and payments, such as attorney fees, utility bills for the trust’s property, or healthcare and funeral expenses for the trustor.

It depends on the type of trust the trustee is managing and the instructions in the trust declaration on their specific duties. If a trustor becomes incapacitated, we can use trust assets to care for them. This is true even if the trustor is not deceased.

 

Trustee vs. Trustor: What’s the Difference?

It is important to note that the Trustee manages the Trust by the directions in the Trust document. Unlike the Trustor, who creates a Trust and names the Trustee, the Trustee uses the direction shown in the Trust document. In a Trust, the ultimate objective is to safeguard and distribute the assets named in it one day. Trustors and Trustees work together in this respect.

Among the many responsibilities of a Trustee are managing the Trust’s day-to-day operations, overseeing distributions and investments, and filing and paying taxes the Trust may owe every year. As a Trustee, you follow the Trustor’s instructions for every activity and responsibility in the Trust. The Trust’s activities and responsibilities are all created when the Trust begins.

 

Are Trustees And Trustors The Same Thing?

It depends on the type of trust set up if the trustee and trustor can be the same person. Revocable living trusts, which help to avoid probate, are the most common.

Trustor Vs Trustee of revocable trusts are initially the same individuals. After the original trustor becomes incapacitated or dies, their successor trustee assumes the trustee role. The trustor continues managing their assets as before they created a trust.

Irrevocable trusts have a separate trustee from their trustor. Irrevocable trusts place assets in trusts managed by others. You can protect your assets and receive tax benefits. For advice on which type of trust is right for you, consult an experienced trust attorney.

 

Can A Beneficiary Serve As A Trustee?

It is also possible to choose the trustee as the beneficiary of a trust, whether the trustee is an individual or an organization. Estate planning attorneys often appoint co-trustees to assist the trustee in administering the trust. This is because having multiple beneficiaries can create a potential conflict of interest. Both trustees act in the beneficiaries’ best interest as a result.

In general, a trustee can appoint as many trustees as they want.

However, more trustees mean more conflict. To avoid this (or at least minimize it), ensure each trustee knows their responsibilities precisely. For instance, using a majority decision requirement will ensure that co-trustees act together.

 

Passing Away of a Trustor: What Happens Next?

It is the successor trustee who manages the trust after a trustor dies. If the trustor performs the role of the trustee during their lifetime, the assets will remain in the trust.

The successor trustee manages and administers assets according to the trust terms. This may include communication with beneficiaries, distributing assets, and terminating the trust.

 

The Best Way to Avoid Conflicts Of Interest

Trustor Vs Trustee conflicts, including conflicts of interest with beneficiaries, can be avoided by clearly stating disclosure requirements, prohibited transactions, and remedial steps in case of a violation of the terms. This prevents trustee-trustee conflicts, including beneficiary conflicts.

Trustees must implement terms requiring them to maintain all documents related to their decisions, transactions, and reasoning. It allows you and your beneficiaries to protect their rights while keeping the trustee in check.

 

Trustor Vs Trustee: Answers to Frequently Asked Questions.

 

Does a trustor have the right to serve as trustee of their trust?

Often, a trustor can be a trustee of their living trust (which is a trust that exists during a person’s lifetime). Trustors who appoint themselves as trustees should also name a successor trustee in case they become incapacitated or die for the trust to continue.

An estate attorney can help you with any questions or concerns about naming yourself a trustee. For example, you can’t be a trustee in a trust that will take effect after you pass away (also known as a testamentary trust).

 

Can a trustee also be a trust beneficiary?

As a trustee, you can also benefit from a trust, regardless of whether it’s an individual or an organization.

As a co-trustee (or trustees) may create a conflict of interest, you should have them work together in administering your trust. That can ensure each trustee is acting in the best interests of all beneficiaries, not just themselves.

 

How does a trustor’s death affect the trust?

A successor trustee manages the trust after the trustor dies. If the trustor served as trustee during their lifetime, their successor trustee will take over.

As the trustee, you must fulfill the trustor’s instructions. This may include communicating with and distributing assets to beneficiaries. You may also need to terminate the trust after the assets revert to the trustor.

 

Do trustors have the option of appointing multiple trustees?

A trustor can appoint as many trustees as they desire to oversee your trust. However, selecting multiple trustees can create potential conflicts.

When choosing more than one, you should set clear guidelines and expectations in your trust documents for each trustee. When making decisions, you can choose if your co-trustees need a unanimous decision (meaning all agree) or a majority decision (meaning most agree). Selecting people who work well together is a good idea.

 

Bottom Line: Trustor Vs Trustee 

Trustor Vs Trustee/Trustors and trustees play crucial roles in establishing and managing trusts. Trustors create trusts, fill them with assets, and leave instructions on managing them. Trustors also appoint trustees responsible for administering the trust following their wishes.

Those who want to create a trust as part of their estate plan should consider a revocable living trust (RLT). RLTs are a popular trust type because they are flexible during your lifetime. You can save your beneficiaries time and money by avoiding probate and transferring your assets directly to them after you pass away with an RLT, so they won’t have to deal with court costs.

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