Trustor What it is How it Works Example
Rajeev Dhir is a writer with over 10 years of experience as a journalist in broadcast, print, and digital newsrooms.
A trustor is an entity that creates and opens a trust. Trustors can be individuals, married couples, or organizations. They contribute property to the trust through donations of money, gifts, and assets.
Trustors commonly establish trusts as part of their estate planning. They transfer their fiduciary duty to a trustee who manages the trust’s assets for the beneficiaries.
Key Takeaways:
– A trustor creates and opens a trust.
– Trustors can be individuals, married couples, or organizations.
– Trustors work with trustees to safeguard and distribute assets.
– Trustees assume the fiduciary duty from trustors.
– Trustors are also known as grantors or settlors.
Understanding Trustors:
Estate planning is a financial service that allows individuals and organizations to preserve, manage, and distribute assets in the event of illness and/or death. Assets commonly included in estate planning are money, properties, vehicles, investments, personal property (artwork, jewelry, and other valuables), life insurance policies, and debt.
A trustor, also called a grantor or settlor, is the entity that sets up a trust and transfers the fiduciary duty to a trustee. The trustor and trustee meet to determine the formation and details of the trust.
Trusts are legal entities designed to hold and safeguard someone’s assets. They provide legal protection for assets the trustor wants to donate to their next of kin or other entities. Trustors may establish various types of trusts, such as testamentary trusts, living trusts, blind trusts, and charitable trusts.
Trustors establish trusts for several reasons, including tax reduction, asset protection, financial stability for young children, capital gains deductions, and wealth transfer between family members.
Special Considerations:
The concept of fiduciary duty is central to the relationship between trustors and trustees. Trustors transfer this responsibility to trustees when handing over their assets. Fiduciaries are legally authorized to hold assets in trust for others and obligated to manage the assets for the beneficiaries’ benefit rather than for their own profits.
Trustees, pension administrators, custodians, and investment advisers are prohibited from engaging in any fraudulent or manipulative behavior when working with beneficiaries.
When Things Go Awry:
While trusts are usually established to benefit heirs, relationships may deteriorate and create legal and ethical challenges. The Rollins family trust, associated with pest control company Rollins Inc., was involved in a 2010 lawsuit. O. Wayne Rollins, the trustor, passed away in 1991. His grandchildren fought their father and uncle, who were trustees, in court for nearly a decade over how the trust was handled. The grandchildren claimed their father and uncle violated trust documents and favored themselves over distributing the wealth equally among the grandchildren. The parties reached a confidential settlement in 2019.
Trust situations can become more complex than intended. Investments within the trust may underperform, leaving beneficiaries with fewer assets than expected. Trustors may also change their minds about trust distribution or asset management, which is possible with a revocable trust. However, it is challenging, if not impossible, to make changes to irrevocable trusts even if trustors regret their decisions.
Example of a Trustor:
The public Securities and Exchange Commission (SEC) Form 3 for Paycom Software, filed on April 26, 2018, details the ownership of securities by company insider Bradley Scott Smith. Smith, the company’s chief information officer (CIO), holds his securities in the Bradley Scott Smith Revocable Trust as of Oct. 30, 2017. This trust benefits Mr. Smith, his spouse, and his children. Therefore, he is the trustor of the account, with his spouse as a co-trustee.
