The Three Parties to a Trust Agreement

Most standard agreements involve the rights and responsibilities of two parties. However, with trusts, there are three key parties who each play an essential role in establishing and maintaining a trust agreement. To form any trust agreement, you will need a Trustor – the individual who creates the trust, a Trustee – the person who manages the trust – and beneficiaries – the people who have an interest in and to the trust property.

Who Is a Trustor and What is Their Function?

As mentioned above, a trustor is the party who creates a trust agreement. The term trustor can be interchangeable with settlor, grantor, or testator. Anyone who has legal capacity to create a trust can be a trustor. Two or more people can even be trustors at the same time (such as spouses or families creating a living trust together). Simply put, a trustor is the person that originally creates a trust.

A trustor is any person who sets forth their testamentary wishes and instructions in a trust agreement. As the trustor, you will name the beneficiaries who are to receive and benefit from the trust property, assign your assets to the trust, and name a party who will administer, manage, and protect the trust assets.

Who Can Be a Trustee and What are Their Responsibilities?

A trustee is the person named in the trust that executes the wishes of the trustor, manages trust assets, and distributes property to beneficiaries upon the death of the trustor. The trustee plays one of the most important functions in a trust agreement, as they are charged with acting in a fiduciary capacity with respect to the trustor and beneficiaries. Trustees are also responsible for administering property effectively, appropriately, and competently within the guidelines of applicable law.

A trustee can be an individual person, two or more individuals acting together, a professional fiduciary, or even a business entity. Typically, when you create a trust, you serve as the trustee of that trust during your lifetime. Then, upon your passing, successor trustees step in to take over this role and manage your trust assets.

In some instances, you may want to name an initial trustee other than yourself. For certain tax planning, asset management, or privacy purposes, may want your LLC, your spouse, or another individual to serve as trustee during your lifetime. Determining who will act as the trustee is important when considering how title to assets will be held and how your trust will be maintained both throughout your lifetime and upon your passing.

What is the Role of a Beneficiary in a Trust Agreement?

The third party to a trust agreement is the beneficiary. This is the person who has a direct interest in the trust property and who ultimately receives distribution of principal and income from the trust assets. Simply put, a beneficiary is anyone who benefits from assets contained in a trust.

A beneficiary can be a singular person, many individuals, a group or classification of people, family members, friends, a company, or even a charity. Nearly anyone can be named as a beneficiary in a trust agreement. However, much like naming a trustee, important considerations should be made to determine who will receive beneficial interest of your trust property.

How The Three Trust Parties Work Together

When you create a revocable living trust, you are typically the trustor, the trustee, and the beneficiary during your lifetime. You create the trust agreement, you maintain the trust property throughout your lifetime, and you have a lifetime interest in any property transferred to your trust.

It is upon your death that successor trustees and residual beneficiaries come into play. At that point, you become the party whose testamentary intentions need to be carried out, and the trustees and beneficiaries are the two parties who work together to effectuate proper administration of your trust.

To learn more trust basics and gain a better understanding on what is involved in creating a trust agreement, use the following link to access my estate planning webinar that covers these topics: I look forward to seeing you there!