Mark Land, Attorney, Serving
Your Business Needs
The "grantor" is the person who creates the trust. Instead of "grantor,"
you may see references to the synonymous terms settlor, donor, or trustor.
The grantor decides what assets are transferred to the trust, who the beneficiaries
and trustees will be, and the terms of the trust. The grantor may also be
the trustee and a beneficiary. (Note: if the sole trustee is also the sole
beneficiary, the legal and beneficial interests "merge" and the trust is
disregarded as a legal entity).
The grantor generally creates by executing a written document (a "trust
document," "deed," or "trust agreement") that provides the terms of the
trust. I strongly recommend that an attorney draft the trust document. The
trust document names a trustee and instructs the trustee how to manage and
invest trust assets. It also names the beneficiaries details when the trustee
pays income and principal to the beneficiaries. Some trust documents give
very detailed instructions about these duties while others give only very
broad instructions. Sometimes, the trust document may provide that the trustee
should immediately distribute the trust income to the beneficiaries, but
the trustee should pay out the principal later. (For example, the trust
might provide that the beneficiary receives the principal when the beneficiary
reaches a certain age.)
The grantor selects the trustee who is responsible for the management and
distribution of trust assets. There can be one trustee or multiple trustees
and can be an individual or a corporate trustee (such as a bank trust department).
Those duties involve require making important legal, investment, and other
decisions; therefore, the grantor should take great care in selecting a
trustee and take into consideration the size, purpose and duration of the
trust, as well the tax implications and the beneficiaries' needs. Often,
the grantor can name himself or herself as trustee. Other common choices
are a trusted family member, friend, attorney, or accountant. Another alternative
is to select a corporate trustee, such as a bank trust department or an
independent trust company. The grantor must take great care in selecting
the trustee, and I strongly recommend consulting with your attorney when
choosing a trustee.
The grantor decides which assets to transfer to the trust Any type of assets
may be transferred to a trust, including cash, stocks, insurance policies,
real estate (including a homestead), or artwork. The type of asset that
is desirable to transfer depends on the assets owned by the grantor and
the grantor's goals for the trust. For example, if the grantor wants to
provide the beneficiaries with a steam of income, the grantor might want
to transfer bonds or high yield stocks. If your grantor wants to provide
beneficiaries with liquidity to pay estate taxes without liquidating other
assets, the grantor might fund the trust with a life insurance policy.