The main difference between Trustor and Trustee is that the Trustor is the person who creates a trust, while the Trustee is the person or entity responsible for managing the trust’s assets according to the trust’s terms.
Who is Trustor and Who is Trustee?
A Trustor, sometimes called a grantor or settlor, is the individual who establishes a trust. They transfer ownership of certain assets into the trust and set the terms for how these assets should be managed. The Trustor outlines the guidelines and objectives for the use of the trust assets, often intending to benefit specific beneficiaries.
On the other hand, a Trustee is the person or organization appointed to oversee and administer the trust’s assets. The Trustee operates based on the terms set forth by the Trustor and has a fiduciary duty to act in the best interests of the beneficiaries. Trustees can be individuals, banks, or trust companies, and they are responsible for tasks such as investing trust assets, distributing income or principal, and ensuring compliance with legal requirements.
Key Differences Between Trustor and Trustee
- Role Definition: The Trustor creates and funds the trust, whereas the Trustee manages and administers the trust.
- Control Over Assets: The Trustor relinquishes control over the assets once they are placed in the trust; the Trustee takes over control and management.
- Fiduciary Duty: Trustees have a fiduciary responsibility to the beneficiaries, which means they must act in the beneficiaries’ best interest. Trustors do not have this obligation.
- Decision-Making Authority: Trustors set the rules and guidelines for the trust; Trustees follow and execute these guidelines.
- Trust Formation vs. Administration: Trustors are responsible for forming and establishing the trust; Trustees focus on the ongoing administration and management.
- Legal Obligations: Trustees are legally obligated to manage the trust according to its terms; Trustors do not have ongoing legal obligations after establishing the trust.
- Compensation: Trustees can be compensated for their services, especially if they are professionals, while Trustors typically do not receive compensation.
- Beneficiary Interaction: Trustees often interact with beneficiaries, making distributions or investments as per the trust terms. Trustors may or may not have any direct interaction with beneficiaries after the trust is created.
Key Similarities Between Trustor and Trustee
- Involvement in Trust Setup: Both the Trustor and Trustee play crucial roles in establishing and operating a trust.
- Affecting Beneficiaries: Actions of both the Trustor and the Trustee significantly impact the beneficiaries of the trust.
- Documentation: Both roles require thorough documentation, such as the trust deed established by the Trustor and operational records maintained by the Trustee.
- Legal Responsibilities: Both Trustor and Trustee must comply with applicable laws and regulations related to trusts.
- Purpose-Driven: Both act within the framework of a trust to fulfill specific purposes outlined in the trust agreement.
- Communication with Legal Professionals: Both Trustor and Trustee often consult with legal advisors to ensure the trust is properly managed.
- Involvement Over Time: Though the nature of their roles differs, both remain involved over the lifetime of the trust.
Roles and Responsibilities of Trustor vs. Roles and Responsibilities of Trustee
- Creation of the Trust: The Trustor is responsible for creating and funding the trust by transferring ownership of assets into it. The Trustee has no role in this initial process.
- Setting Terms: The Trustor outlines the rules and terms for how the trust should operate, detailing how assets should be managed and distributed. The Trustee is duty-bound to follow these terms accurately.
- Amending the Trust: In many cases, only the Trustor has the capability to amend or revoke the trust, assuming it’s a revocable trust. The Trustee does not have permission to make changes unless explicitly granted by the Trustor.
- Administrative Duties: The Trustee handles all administrative tasks related to the trust, including record-keeping, filing tax returns, and distributing income or principal to beneficiaries as outlined in the trust.
- Investment Management: Trustees are tasked with managing and investing the trust’s assets wisely and prudently. The Trustor sets the initial investment guidelines, but ongoing decisions fall under the Trustee’s responsibilities.
- Communication: Trustees are the point of contact for beneficiaries and must communicate regularly, providing updates and answering any questions about the trust. Trustors generally do not have ongoing communication duties after the trust is set up.
- Legal Compliance: Trustees must stay compliant with all relevant laws and regulations pertaining to the trust. This may involve consulting with legal professionals to make sure everything is in order. Trustors, while creating the trust, also need to comply but do not have these ongoing responsibilities.
- Duty of Loyalty: Trustees have a fiduciary duty to act in the best interests of the beneficiaries, avoiding any conflicts of interest. Trustors do not hold this duty but expect the Trustee to uphold it.
