In the context of trusts, a “settlor” (also known as a “grantor,” “trustor,” or “creator”) is the individual or entity that establishes the trust. The settlor is responsible for transferring assets into the trust and defining the terms under which those assets will be managed and distributed. Here are some key points regarding the role of a settlor:
Creation of the Trust: The settlor initiates the trust by executing a trust document, which outlines the trust’s purpose, the assets being placed into the trust, and the responsibilities of the trustees.
Transfer of Assets: The settlor transfers ownership of specific assets (such as cash, real estate, stocks, or other property) into the trust, effectively removing those assets from their personal ownership and placing them under the control of the trustee according to the terms of the trust.
Terms of the Trust: The settlor specifies the rules and provisions of the trust, including how the trust assets should be managed, who the beneficiaries are, and how and when distributions should be made to those beneficiaries.
Revocable vs. Irrevocable Trusts: A settlor can create either a revocable trust, which allows them to alter or revoke the trust during their lifetime, or an irrevocable trust, which generally cannot be changed or revoked once established. The choice between these types of trusts has significant legal and tax implications.
Trustee Appointment: The settlor often appoints a trustee (which can be the settlor themselves, a family member, a friend, or a professional entity) to manage the trust assets according to the terms set forth in the trust document.
Legal and Tax Implications: The actions of the settlor have important legal and tax implications, particularly regarding estate planning, tax liability, and the distribution of assets upon death.
Beneficiaries: The settlor designates beneficiaries who will receive the benefits from the trust, which could include income generated by the trust assets or the assets themselves upon certain conditions being met.
In summary, the settlor plays a crucial role in the creation and structure of a trust, influencing how assets will be managed and distributed in the future.