Trustor vs Trustee: What’s the Difference?

Trustor vs trustee? Trust who? We all know what trust means, between trust funds and legal trusts and trust entities and trust documents, the world of estate planning and trust creation can become a little opaque.

Thankfully, trusts themselves are not very complicated, and the difference between trustees and trustors is even less so. Understanding how trusts work is important because that knowledge allows you to make a choice on whether you should leverage them for your estate plan, and how to make the most out of a trust for you.

What Are Trusts?

In estate planning and financial planning, trusts are a tool or entity defined by a simple three-way relationship:

  • The trustor creates and defines the trust. They fund the trust with what they own.
  • The trustee is assigned the important role of managing the trust for the mutual benefit of the trustor and the beneficiary.
  • The beneficiary is the person primarily benefiting from the trust, and the person who ultimately receives the contents of the trust once the terms of the trust are fulfilled.

While these are three entirely different roles, they aren’t always three entirely different people. Trustors can be trustees, and they can name secondary and tertiary trustees. Trustors can also be beneficiaries of their own trusts.

Other basic terminology surrounds the anatomy of the trust. The trust document, for example, defines the trust’s purpose and name. An asset list attached to the trust names everything the trustor has funded into the entity.

Trusts are either revocable, meaning trustors can amend and undo them, or irrevocable, putting a greater rift between a trustor and their assets, and even protecting them from a trustor’s creditors. A living trust is created while the trustor is still alive, while a testamentary trust is prepared in advance, but only goes into effect after the trustor’s passing.

Trusts are very simple on paper, but it is through their flexibility and versatility that they can become quite complex.

Certain trusts are structured to shelter a trustor from accusations of a conflict of interest while allowing them to hold shares in an industry related to their non-profit work (albeit indirectly, and without their full knowledge).

Trusts can be used to hold and manage wealth from one generation to the next, bypassing probate – or they can be used for multigenerational wealth planning.

Trust funds help manage the inherited fortune of spendthrift children for their own good or ensure that adult dependents with special needs have a financial base to cover their increased cost of living.

You can even set up a trust to assign a friend or loved one as trustee and caretake for a beloved pet and ensure that your pet would have a portion of your estate set aside to pay for their care, for the rest of their lifespan.

How Are Trusts Structured?

Trusts are defined through a trust document, but there is a lot of administrative work and logistics involved in both creating and managing a trust. They are sometimes compared with wills, but this is largely a false dichotomy. Trusts and wills are not mutually exclusive and serve different interests.

A will lets you name your heirs, and what they receive. Trusts are a more involved form of wealth and asset management, requiring that a trustee continues to manage the assets within the trust both while you are still alive (in living trusts), and for a period of time after your death (anywhere from months to decades).

Trusts do not necessarily replace wills, because a trust must be funded to function. This means that while a trust document defines what happens with the contents of the trust, the trustor must still actively move any assets and property they named in their asset list into the trust, usually by amending ownership documents and changing out the trustor’s name for the name of the trust (i.e. John Doe’s Living Trust), as per the trust document.

This means that if you acquire a property before dying, but before you had a chance to add it to your trust (or if you own anything outside of your irrevocable trust), it will still pass through the probate process, and will either be distributed as per your last will and testament, or the intestacy laws of the state you reside in.

In other words, fund your trust. It is not enough to define the trust, the respective documents for each asset or property in said trust must reflect that it is now a part of the trust.

What is the Role of the Trustor?

The trustor, sometimes called the grantor or settlor, provides the impetus for the trust’s creation. They create the trust themselves or with the help of a legal professional.

Trustors need not always be individuals. They can be a married couple, a corporation, or an organization of some sort.

It is the trustor’s job to fill the trust. Trusts can be filled with just about anything that holds value and is not already assigned a designated beneficiary. You can add property to a trust, as well as cold cash. However, you can also add vintage cars, art, jewelry, collectibles, and investment vehicles. You can add bonds and stocks.

What is the Role of the Trustee?

Once a trust is defined, funded, and notarized, the named trustee or trustees of the trust take on the job of managing it. Trusts can earn income – usually in the form of rent or capital gains. Trustees manage the assets within the trust to grow that income conservatively – i.e. low risk – and pay out dividends to the trust’s beneficiaries, as per how the trust is set up.

While the job of trustee does come with a fiduciary duty to both the trustor and the beneficiaries of the trust, it is still important to choose someone you have deep and total faith in. Loyal trustees are the key to any good trust.

That doesn’t mean they do it purely out of the kindness of their heart. Managing a trust can be genuine hard work, and it is compensated accordingly. This compensation is one of the reasons trusts are considered an expensive estate planning option.

Is a Trust a Good Idea for You?

Trusts are a highly versatile tool for managing wealth both while you are alive and after death, especially in the interest of creating a stable financial future for your loved ones.

But they are not the end-all-be-all for every single estate, and there are countless ways to set one up. Always consult with an estate planning professional before you consider creating a trust of your own.


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