A revocable living trust (aka a “living trust,” referred to here simply as a “trust”) is a wonderful estate planning tool. But understanding who the parties in a trust are can get a bit confusing.
In today’s post we are going to review the 3 distinct roles of parties involved in a trust.
The Trust Agreement
A trust is simply a document—called a “trust agreement”—that is created (with the help of an estate and probate lawyer), to manage assets during a person’s (or couple’s) lifetime and then to distribute them after his/her (their) death.
Trusts hold and manage a variety of assets. These can be bank accounts, real property, investments and more. After the trust is created, it is important to “fund” the trust by changing the ownership of the assets to the trust.
Because it is the trust that owns the property at the time of death, assets placed in a trust do not have to go through probate.
Who’s Who in a Trust
There are 3 distinct roles involved in the creation, operation, and distribution of a trust. They are:
- The Grantor/Settlor
- Trustee, and
Now, let’s look at each role.
The key person in any trust is the person who makes or creates the trust. Depending on which state you live in, this person may be called the:
- trustor, or
Regardless of the name he/she goes by in your state (we will use grantor/settlor here), the grantor/settlor is pivotal role in any trust. It is the grantor/settlor who creates the trust, decides how the trust will operate, and funds the trust with his/her assets (money and property).
The trustee has a very important role as well. The trustee is the person who is in charge of running the trust. He/she is responsible for taking care of the trust assets—for example, by making sound investments—and making distributions.
The trustee (or successor trustee if you are the original trustee) also administers the trust after your death. In a way, after your death, the trustee’s role is similar to that of an “executor.”
The trustee may be entitled to a fee for his/her services, but the trustee does not receive your property/assets.
The beneficiary (or beneficiaries if there is more than one) “benefits” from the creation of the trust because the beneficiary is the person who receives the income or property from the trust in accordance with the instructions written down in the trust agreement.
Can You Have More Than One Role in a Trust?
Now that we know who the players are, let’s discuss whether you can play more than one role in a trust.
The answer is, so long as you are living and not incapacitated—yes. As long as these conditions are met, (i.e., you are living and not incapacitated), when you create a living trust as part of your estate plan you can wear all 3 hats.
You can be the grantor/settlor who creates the trust.
AND you can be the trustee who invests and manages the trust assets during your lifetime.
AND you can be the beneficiary of the assets in the trust.
What Happens if You Become Incapacitated (or die)?
If you should become incapacitated (or die) you will no longer be able (or be around to) operate the trust as trustee.
So, at the time of death/incapacitation, a successor trustee will take over administration of the trust.
How are Trust Assets Distributed?
When you die, the trustee (or your successor if you were the initial trustee) must pay all claims against your estate and all taxes. It is also the trustee’s duty to distribute all assets to your beneficiaries as described in the trust agreement.
Most trusts start out with the same person (i.e., the grantor/settlor) playing all three roles.
Then, at the time of death or if he/she should become incapacitated, who plays the role of trustee and beneficiary will change in order to facilitate the grantor/settlor’s wishes as stated in the trust agreement.
To learn more about living trusts, consult with experienced estate and probate counsel.
Protecting Your Family is Just a Phone Call Away.
Don’t leave planning for your future and that of your loved ones to chance. All it takes is one phone call to the Law Offices of Samantha J. Fitzgerald to ensure that your wishes will be followed, and your loved ones taken care of when you are gone. We expertly guide individuals through the complex probate process, and capably handle all aspects of the creation, administration, and settlement of trusts as well. When you work with the estate planning attorneys at the Law Offices of Samantha J. Fitzgerald, you get more than just an estate plan: you get peace of mind. Call us at 954-580-3690 or email us at: [email protected] today.