Meanings of Settlor of Trust, Successor Trustee, and Trustor

Executive Summary

• A trust is an option for individuals wanting to transfer their assets to their preferred beneficiaries upon their death.
• The settlor of a trust and a trustor are the same thing, referring to the person who creates a trust to manage and distribute assets upon their death.
• A trustee is responsible for administering the trust and distributing assets to beneficiaries in line with terms outlined in the trust document.
• Proactive trust creation with the support of a skilled trust administration attorney will increase the chances of appointing a responsible trustee and ensuring a successful trust distribution.

Introduction

Settlor of trust, successor trustee, trustor, and administrator of trust are common terms in estate planning and trust litigation. What do they all mean? Who is the settlor of a trust? If you are a beneficiary of or have an interest in a trust, then it’s crucial you understand what all these terms mean. Knowing the differences between these terms will allow you to understand who serves what role and what you should expect out of each one as you navigate the trust creation or administration process.

With a firm understanding of each, you will know what each term means when you read a trust, what function each person serves in the estate planning process, and where to turn in the event that you need support in understanding or navigating the trust. This short guide will outline their meanings, their relevancy in the process, and how they may affect you.

What is a trust, trustor, and trustee?

If you are creating a trust or will be a beneficiary of a trust, then you will need to know the key stakeholders involved and what it means to have a trust at all. The following terms are foundational in the process.

Trust

Generally, a trust refers to a revocable living trust. Like a last will and testament, a revocable living trust outlines a person’s intentions for how their estate assets should be distributed after their death. However, the difference is that a trust places the estate assets under the umbrella of the trust, transferring ownership away from the individual to the trustee. Often created and drafted by an estate planning attorney, a living trust helps simplify the inheritance process, and helps avoid the probate process altogether.

An individual can also choose between a revocable living trust and an irrevocable living trust. The key difference between the two is that a revocable living trust can be changed by the creator at any time before their death. However, an irrevocable trust can only be changed with the permission of beneficiaries and interested parties.

The terms of the trust are often outlined in the trust instrument, which is a written document or declaration that specifies how to allocate property and assets to beneficiaries. The trust instrument will outline who to distribute assets and under what terms.

Trustor

A trustor is the person, or sometimes the married couple, making the trust. They hire an estate planning attorney and tell the attorney how they would like to distribute their estate assets after death. Commonly, the trustor is a parent, who is creating the trust for the benefit of their children.

Trustee
A trustee is a person or entity named in a trust who is in charge of managing the trust and distributing assets in accordance with the trust document after the trustor has passed away. The trustee does not decide how assets are distributed, but only acts in the best interest of the beneficiaries and the trust itself, using the trust document to guide their decision making.

The trustor will identify and name the trustee in the trust instrument. The chosen trustee is often the most responsible of the trustor’s children, or a trusted family friend who has the financial knowledge and time to effectively administer the trust. However, a trustor can also choose to identify a third-party trustee who is free from family dynamics and less likely to demonstrate bias. A trustee can also be an entity, like a bank, corporation, or organization.

Settlor vs. Trustee: Duties and responsibilities

The settlor and trustee have important roles in the trust administration process. Recognizing the differences in these roles and their duties is important for knowing what to expect of each stakeholder and the process itself.

What is a settlor of a trust?

A trustor and settlor of a trust is the same person. Settlor is simply another term for trustor – i.e. the person who creates the trust for the benefit of their beneficiaries. 

A settlor’s responsibility is to identify which assets they want included in the trust and who they want to receive these assets upon their death. They should specify these preferences in the trust instrument to give the trustee clear instructions to follow.

They should also outline any contingencies in the trust instrument. For example, if the trustor wants to leave financial assets to their grandchild, but they feel their grandchild does not yet have the means to manage these assets responsibly, they can specify that they want them to receive these assets only after mature. Oftentimes, we see the age the settlor sets for later distributions is usually when the beneficiary reaches between 25 and 30 years old. 

What are the duties of the trustee?

Again, the trustee’s key responsibility is to manage the assets of a trust and act in the best interest of the trust while doing so. However, this duty is a robust one and encompasses a wide range of tasks necessary for managing the assets responsibly, protecting the trust’s finances, and preserving the wishes of the trustor.

Some of the duties of a trustee may include:

• Distributing trust assets to beneficiaries identified in the trust
• Following the terms of the trust instrument
• Making responsible investments with trust assets
• Paying estate taxes, mortgages, and other maintenance fees for trust property
• Maintaining an accounting of trust assets and all transactions related to the trust
• Communicating regularly with trust beneficiaries and other interested parties
• Responding to beneficiary requests for information and maintaining transparency
• Navigating potential disputes between beneficiaries

What is a successor trustee?

If the primary trustee dies, is incapacitated, or is simply unable or unwilling to serve as trustee, then a successor trustee takes control. We see most trustors naming a primary and successor trustee in their revocable living trusts. 

It’s a good idea for a settlor to name a successor trustee so that they can be confident that they will have someone trustworthy managing their assets even if their primary trustee is left unable to serve. Naming a successor trustee will also prevent potential delays in the process by having an immediate replacement and allowing there to be a quicker transition of duties without putting any aspects of managing the trust on hold.

If the named trustee is unable to perform their duties and there is no named successor trustee, the beneficiaries or other interested persons may have to file a petition with the local probate court to name another individual as successor. Often, it is advisable to seek the appointment of a responsible individual, such as a professional fiduciary, as successor. In some cases, the replacement trustee may be the estate planning attorney who created the trust. Still, the process of determining the next trustee can take some time, so having an identified successor trustee will allow for a smoother transition and minimize any interferences or delays with the trust administration process.

What is an administrator of trust?

The trustee acts as the administrator of a trust. Generally, the administrator of the trust or trust administrator is in charge of managing a trust and distributing the assets identified in the trust. Frequently, the trust administrator is a fiduciary, meaning a trusted attorney, licensed accountant, or professional fiduciary. The advantage of naming a trust administrator is the financial or estate tax experience they may bring to the situation. 

For example, if the trust of a large estate includes numerous businesses, real estate properties, and complex assets, it may be a big advantage to name a fiduciary experienced in business and tax law to help effectively transfer inheritance assets from the trust to beneficiaries, while avoiding unnecessary estate taxes and fees.

What is Fiduciary Duty?

Fiduciary duty is the responsibility of an individual in a contractual relationship to act in the best interest of those whom they are supporting or managing financial resources for. Trustees, successor trustees, and all other administrators of a trust are considered fiduciaries and have a responsibility to uphold this duty as they fulfill the terms of the trust document.

In short, this duty requires that trustees maintain a standard of care as they manage and distribute trust assets. This may include ensuring transparency in the management of trust assets, communicating with all beneficiaries, and making responsible decisions for assets in the trust.

Breaching this fiduciary duty may not only lead to financial harm to the trust and damage the wishes of the trustor. A breach of fiduciary duty can lead to action against the trustee and serve as justification for the trustee’s removal or surcharge.

Creation and execution of trust documents

When creating or establishing a trust, a settlor should ensure that their trust document is legally compliant and follows all requirements. Maintaining a careful trust creation process with the support of an estate planning attorney will ensure the legitimacy of the trust and significantly reduce the risk of conflict when it comes time for the administration process.

Process of Creating a Trust Document

After a trustor passes away, the trust document is the center of the entire process, determining what actions the trustee should take and serving as law for the distribution of assets. As a result, it’s crucial to have an airtight process that ensures the trust document clearly outlines the settlor’s intentions without ambiguity.

In creating a trust document, a trustor should follow the following steps.

• Determine the best kind of trust – A trust can either be revocable or irrevocable. Each has its own benefits, and an attorney can help distinguish which option makes the most sense for one’s case.
• Identify beneficiaries of the trust – The trustor should identify who they want to receive the assets from their estate and at what amounts.
• Determine what assets to include in the trust – A trustor must determine which assets they want to pass down to their heirs, including investment accounts, property, personal belongings, and more.
• Decide the rules of the trust – Trustors should explicitly state rules for how they want the assets managed, like if they prefer to have assets liquidated or kept in investment accounts, distributed upon their death or under specific criteria, or left under the discretion of the trustee.
• Select the trustee – The trustor should choose a trustee that they feel is best fit for carrying out the trust responsibly, whether this is a trusted family member or a third-party professional.
• Draft the formal trust document – This document should lay out the trustor’s preferences and intentions in clear terms so that there is no ambiguity surrounding how to distribute assets.

Once the formal trust document is in place, the trustor can set up a trust account and transfer the identified assets into the account. The trustor should also consider protecting assets outside of the trust by creating a power of attorney.

The drafting process should include seeking the support of an estate planning attorney. An experienced attorney can help you ensure that the trust document is clear, enforceable, and comprehensive so that nothing is excluded and there are no avoidable delays in the future administration process.

Having an attorney present during the drafting process can also help avoid ambiguity in the document and ensure legitimacy to minimize the risk of trust contests down the line. The attorney will also ensure that the trust is set up appropriately so that assets are and can be easily transferred upon the trustor’s death.

Legal requirements

It’s important that the trust meets all legal requirements in order to remain enforceable upon the trustor’s death. The most important requirements are that the trust is validated, that the appointed trustee is fit to serve, and that the trust is funded.

For example, once drafting a trust document, a trustor should also have it signed and notarized. Signing and notarizing the trust document will guarantee that it is valid and enforceable in the eyes of the law. This will ensure that it is upheld after their death and there is no ambiguity surrounding how to manage trust assets.

Meanwhile, in naming a trustee, the trustor should ensure that the trustee meets all legal requirements to serve. In California, a trustee must be at least 18 years of age, a U.S. citizen, and of “sound mind” to serve and make responsible decisions. Texas outlines the same criteria. Following these criteria will ensure that the trustee is capable of making responsible decisions and can avoid tax complications when managing the trust.

Can I sue a trustee? Or contest a trust?

Yes, you can sue a trustee and contest a trust if necessary—it’s relatively common to sue a trustee or to contest or dispute a trust. If you are a beneficiary of the trust and feel that you’re not receiving your rightful inheritance, contact a trust litigation attorney, immediately. 

The most common reason to sue a trustee is a breach of fiduciary duty, which is a wide umbrella that can encompass several acts of misconduct or irresponsibility. Some situations where a beneficiary may choose to sue a trustee include:

• Acts of misconduct, such as theft, asset mismanagement, or fraud
• Engaging in self-dealing or other conflicts of interest
• Irresponsible management of trust assets that results in financial losses for the estate
• Failure of the trustee to appropriately communicate with beneficiaries or respond to beneficiary requests
• Actions that fail to uphold the interests of the trustor
• Incurring avoidable and unnecessary fees and expenses on behalf of the trust.

Meanwhile, contesting a trust is an option for beneficiaries who have concerns surrounding the terms outlined in the trust instrument itself. For example, contesting a trust is appropriate when you disagree with the distribution amounts outlined for beneficiaries, discover areas of ambiguity in a trust, or have concerns about the legitimacy of the terms laid out in the document.

If you feel that you have grounds to sue a trustee or pursue a trust contest, consult a trust litigation attorney to determine if this is the appropriate next step for you.

When do I need a trust litigation attorney?

The moment you think you’re at risk of not receiving your rightful inheritance, or if you suspect a trustee is stealing from a trust, it’s time to contact a trust litigation attorney. 

A trust litigation attorney is instrumental in the process and will support you in gathering evidence of potential misconduct, understanding your legal options, and seeking the best possible outcome for you and the estate. An attorney will devise a strategy necessary to protect the interests of the trust, often leading to negotiations or mediation to bring about a resolution with the least interruption to the process. If necessary, they will also represent you in litigation and help you present your case before the court.

Do I need a trust litigation attorney near me?

We recommend finding an experienced trust litigation attorney familiar with the local probate court in the county where the trust is located, as that is likely where the trust litigation would have to occur. For example, if the beneficiary lives in San Diego, yet the trust is in Los Angeles, we recommend working with a trust litigation lawyer in Los Angeles. 

A Los Angeles trust litigation attorney will generally be more familiar with the Los Angeles Superior Court Probate Division and its local rules, versus an out-of-state attorney. At RMO, we help people like you address issues surrounding trusts every day. Our attorneys have extensive experience supporting clients in California and Texas and are well-versed in the laws surrounding trusts in both states, allowing us to provide you with the support you need in establishing or managing your trust.

Ready to safeguard your trust? Contact our experienced trust administration and litigation attorneys for guidance

A settlor of a trust, also known as a trustor, and the trustee are key stakeholders in trust administration. A settlor of a trust creates the document to have their assets distributed to beneficiaries and then a trustee is responsible for following the terms of this document. If you have any questions about your responsibilities or the responsibilities of others involved in a trust, then you should contact a trust administration attorney for guidance.

At RMO, we have decades of experience in trust administration cases. With a thorough understanding of the trust administration process, our trust administration attorneys will help you navigate the legal ins and outs. We’ll ensure you understand your role in the process, have a firm grasp on the legal obligations, and have the support necessary to carry out your duties effectively.

Schedule a consultation with our team for additional support in the trust administration process.