Settlor vs. Trustee

Attribute	Settlor	Trustee
Role	Creates the trust	Manages the trust assets
Legal capacity	Must have legal capacity to create a trust	Must have legal capacity to manage trust assets
Responsibilities	Decides on trust terms and beneficiaries	Administers the trust according to its terms
Control	May have limited control over trust assets	Has control over trust assets

Introduction

When setting up a trust, two key roles are involved: the settlor and the trustee. While both play crucial roles in the administration of a trust, they have distinct attributes that differentiate their responsibilities and duties. Understanding the characteristics of each role is essential for anyone looking to establish a trust or serve as a trustee. In this article, we will compare the attributes of a settlor and a trustee to provide a comprehensive understanding of their roles.

Settlor

The settlor, also known as the grantor or trustor, is the individual who creates the trust. The settlor is responsible for transferring assets into the trust and establishing the terms and conditions under which the trust operates. One of the key attributes of a settlor is their ability to determine the beneficiaries of the trust and specify how the trust assets should be distributed. Additionally, the settlor may include specific instructions on how the trustee should manage the trust assets and make distributions to beneficiaries.

Another important attribute of a settlor is their ability to revoke or amend the trust. In many cases, a settlor retains the power to modify the terms of the trust or revoke it entirely during their lifetime. This flexibility allows the settlor to adapt the trust to changing circumstances or address any unforeseen issues that may arise. However, once the settlor passes away, the trust typically becomes irrevocable, meaning that the terms of the trust cannot be altered.

Furthermore, the settlor may choose to appoint a successor trustee to manage the trust in the event of their incapacity or death. This ensures continuity in the administration of the trust and provides a clear plan for the management of trust assets. The settlor's ability to designate a successor trustee is a crucial attribute that allows for the seamless transition of trust responsibilities.

In summary, the settlor is the individual who creates the trust, transfers assets into the trust, determines the beneficiaries, establishes the terms of the trust, and may have the power to revoke or amend the trust during their lifetime. The settlor plays a pivotal role in shaping the trust and setting the parameters for its administration.

Trustee

The trustee is the individual or entity responsible for managing the trust assets and carrying out the terms of the trust. One of the primary attributes of a trustee is their fiduciary duty to act in the best interests of the beneficiaries and administer the trust in accordance with the settlor's instructions. This duty requires the trustee to exercise prudence, loyalty, and impartiality in their decision-making process.

Another key attribute of a trustee is their legal responsibility to oversee the trust assets and make distributions to beneficiaries as outlined in the trust document. The trustee must follow the instructions provided by the settlor and adhere to any legal requirements governing the administration of the trust. This includes managing investments, maintaining accurate records, and providing regular accountings to beneficiaries.

Additionally, the trustee has a duty to avoid conflicts of interest and act with transparency and accountability in all trust-related matters. The trustee must prioritize the interests of the beneficiaries above their own and refrain from engaging in any activities that could compromise the integrity of the trust. This attribute underscores the importance of selecting a trustee who is trustworthy, competent, and capable of fulfilling their fiduciary obligations.

Furthermore, the trustee may have the authority to make discretionary decisions regarding the management of trust assets and the distribution of income or principal to beneficiaries. This discretionary power allows the trustee to respond to changing circumstances or unforeseen events that may impact the trust. However, the trustee must exercise this authority prudently and in accordance with the terms of the trust document.

In conclusion, the trustee is responsible for managing the trust assets, making distributions to beneficiaries, and carrying out the terms of the trust in accordance with the settlor's instructions. The trustee's fiduciary duty, legal responsibilities, and discretionary powers are key attributes that define their role in the administration of a trust.

Conclusion

In summary, the settlor and trustee are two essential roles in the establishment and administration of a trust. While the settlor creates the trust, determines the beneficiaries, and establishes the terms of the trust, the trustee is responsible for managing the trust assets, making distributions to beneficiaries, and carrying out the settlor's instructions. Understanding the attributes of each role is crucial for anyone involved in the trust administration process. By recognizing the distinct responsibilities and duties of the settlor and trustee, individuals can ensure the effective management and preservation of trust assets for the benefit of the beneficiaries.