Grantor vs Settlor

As estate planning attorneys, we often discuss the differences between a grantor and a settlor. Many people are unsure of the distinctions between the two terms and what implications they have for their estate plan. In this blog post, we will define both concepts and explore some of the key differences between them.

What is a grantor trust?

A grantor trust is a type of trust in which the original creator, or grantor, of the trust also retains control over it. This means that the grantor can make changes to the trust, revoke it entirely, or even act as the trustee themselves. Grantor trusts are often used for estate planning purposes, as they can help to minimize gift and estate taxes. However, there are some disadvantages to this type of trust, as well. For example, if the grantor dies before the terms of the trust are met, the trust may be dissolved and the assets distributed according to the grantor’s will instead. As a result, it’s important to carefully consider all potential outcomes before setting up a grantor trust.

What is a settlor trust?

A settlor trust, also known as a living trust or an inter vivos trust, is a type of trust created during the lifetime of the settlor, or grantor. The settlor transfers ownership of their assets to the trustee, who manages the assets for the benefit of the beneficiaries. The settlor can be both the trustee and the beneficiary, which allows them to maintain control over their assets while still providing for their family after they die. A settlor trust can be revocable or irrevocable. A revocable trust can be modified or terminated by the settlor at any time, while an irrevocable trust cannot be changed once it has been created. Settlor trusts are often used to avoid probate, reduce estate taxes, and provide for family members with special needs.

How are they different from each other and what are the benefits of each one for the beneficiary/s ?

Grantor and settlor are two legal terms often used in the context of trusts and estate planning. A grantor is the person who creates a trust, while a settlor is the person who provides property to be held in trust. The Grantor also appoints a trustee to manage the trust property and carry out the Grantor’s wishes. The Grantor may be the Settlor, but not always. For example, if a parent wants to create a trust for their child, the parent would be the Grantor and the child would be the Settlor.

There are several benefits of Grantor trusts. One is that Grantors can change their minds about the terms of the trust or even revoke it altogether. Another is that Grantors can receive tax benefits from creating a Grantor trust. Finally, Grantor trusts can help Grantors avoid probate. Settlor trusts also have several benefits. One is that they can provide more flexibility than Grantor trusts in terms of how assets are distributed. Another is that Settlors can choose to have their trust managed by a professional trustee instead of managing it themselves. Finally, Settlor trusts can help Settlors protect their assets from creditors. Ultimately, whether a Grantor or Settlor trust is right for you depends on your specific goals and objectives.

Who can be a trustee and what responsibilities come with that role ?

A Grantor is the person who creates and transfers property into a trust. A Settlor is the person who provides the property for the trust. The Grantor and the Settlor can be the same person. The Settlor has full control over the property and can change or end the trust at any time.

The Grantor appoints a trustee to manage the trust property and carry out the Grantor’s wishes as specified in the trust agreement. Trustees have a fiduciary duty to act in good faith and in the best interests of the beneficiaries. They must also adhere to the terms of the trust agreement and follow any other applicable laws.

Responsibilities of a trustee include:

  • Managing and investing trust assets
  • Making distributions to beneficiaries in accordance with the terms of the trust
  • Keeping accurate records
  • Filing tax returns
  • Paying taxes
  • Providing accountings to beneficiaries

A trustee can be an individual or an institution, such as a bank or law firm. The Grantor can also serve as trustee, but this is not recommended because it can create potential conflicts of interest. It is important to select a trustee carefully and make sure that they understand their duties and responsibilities.

What happens if the grantor or settlor dies while the trust is still in effect ?

If the grantor or settlor dies while the trust is still in effect, the trust will not be automatically terminated. Instead, the trust will continue to exist and be managed by the trustee according to the terms of the trust agreement. However, the death of the grantor or settlor may have some impacts on the trust. For example, if the grantor was also the trustee, then the death of the grantor would mean that there is no longer a trustee to manage the trust.

In this case, the successor trustee would need to be appointed according to the terms of the trust agreement. Alternatively, if the death of the grantor or settlor triggers a distribution of assets from the trust, then the trustee would be responsible for distributing those assets according to the terms of the trust agreement.

How do you terminate a trust and who gets to keep the assets in it ?

Depending on the type of trust, there are a few different ways to terminate it. For an express trust, the Grantor or Settlor can terminate it through a valid amendment to the trust instrument or by revoking it entirely. If the Grantor or Settlor is also the Trustee, they can simply choose to distribute all of the assets and dissolve the trust.

However, if there are multiple Trustees, they would need to unanimously agree to terminate the trust. For a resulting trust or constructive trust, they generally end when the purpose for which they were created has been fulfilled. For example, a resulting trust created to sell property would end once the property has been sold. Finally, an inter vivos trust usually ends upon the death of the Grantor. Upon termination, the assets are transferred to the Beneficiaries according to the terms of the trust. If you have any questions about terminating a trust, it’s best to consult with an attorney.