What Is the Settlor of a Trust?

Jan 13, 2025
Categories
Trust Management & Settlement

The settlor of a trust is the person or entity that establishes it. Often called management, the vision a settlor has for the trust is what will guide its operation. 

What Is the Role of a Settlor of a Trust?

What is a settlor of a trust?

At its most basic, the definition of a trust settlor is the person who establishes it. In some situations, that is all the grantor does. However, it can be more involved than that. Consider some of the roles that settlors may take in trust set up and management. 

Establishing a Trust

The main responsibilities of a grantor center around trust formation. Settlors begin the process of creating a trust. They also fund it and pay any legal fees associated with establishing it. That is only the beginning of a settlor’s role. 

Establishing Distribution Rules

Grantors select and name beneficiaries, or the individuals who will receive the trust’s assets. They also define the exact conditions under which distribution takes place. Distribution rules detail how property is transferred from the trust to the beneficiaries. 

Settlors can modify beneficiaries and distribution rules once a trust is established. This may happen if there is a disagreement between the grantor and a beneficiary or if they want to add another person. 

Administering a Trust

When asking what is the settlor of a trust, you must consider the role the settlor chooses to take once it is established. Many grantors choose to actively engage in managing trust assets and name themselves as trustees over the funds. Trustees should name a successor to take over management of the trust upon the trustees death. The successor trustee cannot modify the terms of a trust. 

This method allows the settlor to manage the assets and use them as he or she sees fit. A settlor trustee maintains a high level of control over the property placed in trust and can generally use it as personal property. For example, a grantor trustee can sell a trust asset such as a home or land to pay for assisted living or nursing care. 

Some of the management responsibilities of a settlor trustee include:

  • Paying taxes: The settlor is typically responsible for any taxes on trust income. 
  • Assigning property: Grantors must reassign titles on property placed into the trust into its name.
  • Reviewing rules: Trustees must review the trust and its rules to ensure it is up to date and appropriate. They will also change any rules as they become outdated. 

These responsibilities do not fall to the settlor if he is not the trustee. They also do not apply in irrevocable trusts where the grantor gives up any management or access to the funds once they are transferred and applicable taxes are paid.

Who Can be a Settlor of a Trust?

How do you decide who should be the settlor of a  trust?

For the most part, any adult who wants to establish a trust can be a settlor. That is the very meaning of a settlor in trust formation. You must meet the following criteria to be a grantor of a trust:

  • At least 18 years old
  • Own property or other assets
  • Of sound mental capacity

Additionally, settlors must establish trusts without coercion or undue influence. Friends and family members can try to influence beneficiary decisions this way, but it leaves the door open for contesting the terms of the trust. 

The most common reason to establish a trust is to protect your financial assets. They may help minimize some taxes and can help your beneficiaries avoid probate. Therefore, anyone who has assets such as houses, land, stocks, savings, or other investments may choose to become a settlor and establish a trust. 

Do All Trusts Have Grantors?

While all trusts require settlors to establish them, not all have one involved in the administration of funds. Trusts can be either revocable or non-revocable. Settlors can serve as trustees of revocable trusts, and many do. This includes normal administrative duties that ensure the funds are invested as intended. They have no involvement in administering non-revocable trusts once they are established.  

Find Out More About What a Settlor of a Trust Is

Establishing a trust is an important financial decision designed to protect assets and manage taxes. If you have more questions like what is a settlor of a trust, our legal professionals at AmeriEstate can help. We provide comprehensive estate planning services at a fraction of the cost of traditional attorneys. Contact us to learn more.