Grantor vs. Trustee vs. Beneficiary

A Living Trust (also referred to as a Revocable Living Trust, or Inter Vivos Trust) is a legal entity created to hold a person’s assets. The Latin "inter vivos" translates to “among the living”, meaning that a Living Trust is created during your lifetime.

A Living Trust becomes effective immediately upon execution. But, for your Living Trust to function as intended, you need to fund it with your assets. Funding a trust is another way of saying re-titling your assets to the name of the trust so that the trust becomes the legal owner of those assets.

Even though the trust becomes the legal owner of the assets you put into the trust, you retain the ability to use and enjoy and benefit from those assets, just like before. Then, when you pass away, the trust assets can be passed on to your heirs and Beneficiaries without court involvement.

Who Are the Parties Involved in A Trust?

There are three parties involved in a Living Trust:

  1. The Grantor;
  2. The Trustee; and
  3. The Beneficiary

The Grantor (also referred to as the "trustor," "donor," or "settlor") is the person who creates the trust and transfers their assets into it. The Grantor is the only one who has the power to revoke or amend the trust. That's why during the Grantor's lifetime, the trust is called revocable and becomes irrevocable once they pass away.

The Trustee is the person who has the job of managing the trust assets for the benefit of the trust Beneficiaries. In simpler estates, the Grantor is often the Trustee as well. Whats more, in certain cases the Grantor can also act as both the Trustee and Beneficiary. Nevertheless, the terms of the trust will specify who becomes the successor Trustee when the Grantor or original Trustee passes away.

The Beneficiary is the person who benefits from the trust assets. During the Grantor's lifetime, he or she can continue to be the Beneficiary of his or her trust. The trust document will specify who will become the Beneficiary when the Grantor passes away, for example, their spouse, children, or a favorite charity.

Choosing Trustees and Beneficiaries

There are many reasons to create a Living Trust as part of your overall estate plan, including:

  • To avoid the time, cost, and publicity of probate;
  • For control over how your assets will be distributed after you die;
  • To have someone to handle your financial affairs if you were to become incapacitated; and
  • To minimize estate and gift taxes.

When creating a trust, the choice of Trustee and Beneficiaries is a very important one, and is best decided with the assistance of a qualified estate planning attorney.

Who Can the Trustee Be?

An important decision to consider when creating your trust is who will be your Trustee. Your Trustee must follow the terms of your trust. He or she may also be required to spend significant time tending to the Trust assets, handling your affairs during your incapacity, settling your estate after you pass away, and administering the trust over time until it is fully distributed.

Your Trustee must be able to communicate properly, perform quarterly accounting, file tax returns, and follow prudent investor rules, some or all of which may be challenging for some individuals. So, even though you can name yourself, a relative, or a friend to act as your Trustee, many people select a qualified attorney or professional Trustee to fulfill the role, or at least to act as their successor Trustee once they have passed away.

Who Should Be the Beneficiaries of Your Living Trust?

As mentioned above, your Beneficiaries are the parties who will benefit from your trust. People most often designate loved ones who they want to provide for or support as the Beneficiaries of their trusts.

When it comes to choosing who the Beneficiaries of your trust will be, you may be influenced by many different motivations. Sometimes choosing a Beneficiary goes beyond immediate loved ones and family members to your favorite social organization or charity.

Some people choose Beneficiaries out of friendship or support of a common cause, or personal respect for some accomplishment that person has achieved. The bottom line is that you can name just about anyone or anything a Beneficiary in your trust document.

That said, your choice of Beneficiaries should be in line with your overall estate planning goals. Furthermore, you should remember to review and update your trust Beneficiaries every couple of years and after major life events, such as a birth, death, or divorce in the family.

Consult with a Qualified Estate Planning Attorney

A properly drafted Living Trust is an essential aspect of every comprehensive estate plan. An experienced estate planning attorney can help you understand the roles that each party involved in a Living Trust plays, and how it is important to the overall effectiveness of your Living Trust. For more information, contact a qualified estate planning attorney today for a free consultation.