Who are the Relevant Parties to a Trust?
By: Barry E. Haimo, Esq.
September 27, 2021
When you create a trust to protect, grow, and distribute your assets, it involves a number of parties. These parties each perform different necessary roles and have individual responsibilities. In order for a trust to work all of the relevant parties have to do their job. So, who are the relevant parties to a trust?
Also known in some cases as the Trustor, Settlor, or Donor. This title refers to the person, couple, or entity that owns the assets to be put into the trust. Any asset can be placed into a trust: antique items, art, investments, real estate, savings accounts, vehicles, and so on.
The Grantor is legally required to name a specific person who is to benefit from the assets held in the trust.
A beneficiary is the person, people, or organizations who benefit from the assets held in the trust. The trust is primarily for his/her/their benefit. It is managed by the trustee for that purpose and based on an elevated standard of care called “fiduciary duty”.
These are the individuals designated as the responsible party for controlling the assets in the trust. And depending on the nature of the trust, they can have a lot of power over what is done with the assets.
Trustees have a fiduciary duty to manage the assets in the estate for the benefit of the beneficiaries. And they are at the risk of being personally liable for failing to do so.
For example, they could decide to loan artwork in the trust out to museums. Or they could rent out real estate. Their actions need to show that they are attempting to grow the assets and acting in the best interest of the trust.
For some trusts, the Grantor will name him or herself as Trustee while they are still alive. In these situations, the Trustees who take over after they pass away are called alternate or Successor Trustees.
A Successor Trustee could also be named in the event that the initial Trustee is unable to fulfill their duties. In either situation, the role of the Successor Trustee is identical to the role of a regular Trustee.
A Trust Protector’s job is to – you guessed it – protect the trust. Trust protectors were originally used for tax purposes. Today, however, they are used in a variety of different trusts by people of varying socio-economic status. As a result, they absolutely MUST be properly drafted to be able to navigate a changing and unpredictable environment relating to taxes, law, family dynamic, and market fluctuations.
Some powers a Trust Protector may have include:
- The ability to remove a trustee and have them replaced with someone else (not themselves).
- The power to amend the trust if there are changes in the law that would adversely affect it.
- The power to resolve disputes (between trustees if there are multiple people or entities acting as trustees, or between trustees and one or more of the beneficiaries).
- The ability to alter trust distributions if there are changes to a beneficiary’s life.
- The power to add new beneficiaries to the trust. (For example, if there are additional descendants.)
- The ability to veto investment decisions.
- The ability to provide oversight to a beneficiary who is also the trustee.
Ensuring you have named your relevant parties to a trust and understand their roles is crucial to protecting your assets.
Originally published 05/16/2019. Updated 09/27/2021.
Barry E. Haimo, Esq.
Strategic Planning With Purpose®
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