Creating a trust can be a complex and arduous task from a legal point of view. A trust is used for estate planning, which is supposed to function within its pre-set and legal parameters. This is why it is important to approach an experienced attorney with seasoned knowledge while creating a trust. According to a survey, 74% of Americans find estate planning confusing. That’s where Mucci Law comes into the picture; we offer stellar estate planning services to make the creation of a trust a seamless experience.
Who is a Trustor?
A trustor is an individual who creates a trust, also known as a grantor or a settler in some jurisdictions. The trustor selects the beneficiary who will eventually receive benefits from the trust. A trustor holds varied powers, roles and responsibilities depending on the type of trust.
Roles and Responsibilities of a Trustor
Though they sound similar and often overlap, both trustors and trustees have different kinds of roles and responsibilities and hold different powers. That is why it is important to delineate their distinct roles and responsibilities for successful estate planning and its execution.
- Appointing a Trustee: The first and most important duty of the trustor is to appoint an experienced and knowledgeable trustee. Trustees play an important role in the successful execution and management of the trust.
- Defining Trust Terms: It is the sole responsibility of the trustor to outline the terms and conditions of the trust. Trusts can be of various types, and it’s the trustor’s responsibility to choose the beneficiary and which assets will fund the trust.
- Choosing Beneficiaries: Choosing an appropriate beneficiary is also a trustor’s responsibility. It is solely up to the trustor to choose who will receive the benefits from the trust. A beneficiary can be anyone from the trustor’s own family to a third party.
- Allocating Assets: A trustor has full rights to decide which beneficiary will receive what asset(s), and up to what amount (in the case of multiple beneficiaries).
Example:
Suppose Gracie decides to secure the future of her children financially so they don’t face any hurdles. Gracie creates a trust by allocating the assets for her children, who will receive a set amount of money as per the terms and conditions of the trust once they hit the appropriate age. Gracie becomes the trustor of the trust.
Who is a Trustee?
A trustee is an individual who can be a legal person or entity, such as a bank or a legal organization, to oversee the trust. A trustee is appointed by the trustor to manage the trust’s assets. Apart from that, a trustee also plays a crucial role in estate planning and holds various roles and powers. The roles and responsibilities of the trustee depend on the terms and conditions and type of trust agreement.
Roles and Responsibilities of the Trustee
- Acting on Trust Terms: The primary duty of a trustee is to act upon the terms and conditions described in the instrument of the trust. They manage the trust while holding a fiduciary duty to the beneficiaries, meaning they must act in the best interests of the beneficiaries.
- Administrative Duties: The trustees are also responsible for managing the day-to-day administrative and managerial tasks such as maintaining records, paying taxes, etc. It is also the trustee’s responsibility to file and oversee the management of taxes within the trust.
- Legal Compliance: It’s the legal responsibility of the trustee to act exactly according to the terms and conditions mentioned in the instrument of the trust. This can include distributing the assets to the beneficiaries as per the percentage or set amount mentioned in the trust.
Example:
Continuing with Gracie’s example above, Gracie further decided to appoint her best friend Nicole to manage and administer the trust. Nicole must serve in the best interests of the trust and distribute the assets to Gracie’s children once they reach a legal age, and also ensure the money is used according to Gracie’s wishes. In this scenario, Nicole will be the trustee.
Key Differences Between the Trustor and Trustee
Understanding the key difference between the trustor and trustee is important for effective estate planning. The major differences include:
Powers: The trustor has the power to revoke or alter the terms and conditions of a revocable trust, while the trustee’s powers are restricted and limited to managing the trust as defined by the trustor.
Execution of the Trust: The trustor must execute the trust document and depict the terms and conditions. The trustee has to simply act upon the terms religiously. Failure to comply with it may result in the termination of the trustee.
Fiduciary Duties: After the execution of the trust, the trustor has no fiduciary duty to the beneficiaries, while the trustee acts solely in the best interest of the beneficiaries throughout the trust’s existence.
Tax Responsibilities: Tax implications also vary for both the trustor and the trustee. In revocable trusts, the trustor may still be taxed on the income generated by the assets of the trust. However, in irrevocable trusts, it is solely the trustee’s duty and legal responsibility to pay the taxes on time to enjoy tax benefits.
Vital Role Played by Trustor and Trustee in Estate Planning
The trustor and trustee can be called the backbone of estate planning. Both of them shape the successful execution and the funding of the trust. They play an essential role in the smooth and seamless funding of the trust and wealth preservation, as well as in protecting the legal interests of the beneficiaries.
Effective estate planning is necessary to avoid a myopic view, and this is also very proactive from a financial point of view. Together, the trustor and trustee work in synchronization to create a comprehensive estate planning plan.
The trustee’s foresight, such as managing the trust, interacting and serving the best interests of the beneficiaries and preserving the trust’s assets, results in successful estate planning by minimizing the tax burdens, preserving the wealth for generations, eliminating the legal tax implications and also to serve the best interests of the beneficiaries. Both trustor and trustee, although very distinct, indeed are interdependent.
How Mucci Law Can Help
At Mucci Law, we have a dedicated team of trust and estate lawyers who are ready to serve our clients in the best possible manner. Our experienced team has strategic and customized plans that are tailored to cater to your unique individual needs.
Our highly skilled team always provides lawyers at a reasonable cost, and we also help in quick and steady dispute redressal. We prioritize our client’s interests, follow their cues and work accordingly.
So, without giving it a second thought, contact Mucci Law today for a successful and comprehensive plan for estate planning.
FAQs
Why use a trust lawyer?
For trust planning, it is crucial to have a devised, well-executed, pragmatic plan. Without that, there is the potential for errors and legal issues.
What estate planning services does Mucci Law offer?
Our skilled and dedicated team provides many estate planning tools such as will, trust, power of attorney and advance directives based on our client’s needs.
What trust litigation services does Mucci Law offer?
Trust litigation is often hectic and time-consuming, but we at Mucci Law make trust litigation as hassle-free as possible. We are here for you, providing any sort of guidance with trust litigation.
Abhishek Shah
