The difference between trustor and trustee is actually really simple: a trustor is the person who created a trust, and a trustee is the person put in charge of managing and carrying out the terms of the trust.
Okay… but that only helps if you know what a trust does, right?
I’m willing to bet you have an idea, but we have an analogy we like to use in the offices here that really crystalizes the concept.
A very helpful analogy for a trust
Think of a trust like a folder that a person sticks all kinds of assets into. These can be bonds, stocks, real estate — most assets, really.
If that folder is revocable, that means the person who made it, the trustor, can put their hand back in the folder and shuffle around some of the assets and ownerships.
If it’s irrevocable, then that folder is locked shut and can only be opened by the trustee, the person in charge of distributing the folder, after the trustor passes.
Any revocable trusts become irrevocable after the trustor passes.
And once that happens, the trustee takes the folder, opens it up, and has a fiduciary responsibility (a.k.a. hardcore legal and financial duty) to do what the trust says.
So if it says give my cousin all of my Sigma camera lenses, the trustee does it. If it says give my upholstery business to Jed who doesn’t know squat about upholstery, the trustee still has to do it.
The reason why people use this folder is because trusts allow the trustee to give that folder of assets to the right people with much fewer hurdles.
Take probate for example, if the trust is properly funded and owned, the trustee can instantly give assets in it to beneficiaries (the people receiving things from the trust) instead of having to hand that folder to the probate courts for review first.
There are also tons of types of trusts that offer all sorts of benefits. Anything from providing for children with disabilities to charitable trusts are on the table.
What is a trustor?
A trustor is the person who made the trust. The boss person, guy, woman — whatever. They’re the reason it exists. They’re setting the terms. They’ve got the cards.
Plot twist: trustors aren’t just single people, either. Yes, it’s a singular noun, but the trustor can be a team of people, a married couple, a whole organization — it doesn’t matter. The trustor, either individually or collectively, decides what assets will be tucked into it (known as “funding”, designate beneficiaries, and determine timing of distributions and inheritances.
If you’ve ever heard of “trust fund kids” or people who get money after completing certain milestones (e.g. a release of cash when they graduate from college), this is how those people do it.
What are other names for trustor?
It wouldn’t be finance without an unnecessarily long list of jargon and/or synonyms. Here are a few other names for trustor:
- Creator
- Settlor
- Grantor
What is a trustee?
A trustee is the person who is responsible for managing the assets in that trust folder.
When the trustor dies, the trustee named in the trust takes on a role that's similar to that of the executor of an estate: ensuring that any debts are paid and property is distributed.
Basically they look at the trust and all the assets in it, and then they start following the instructions in the trust. These could be almost anything, but they have a legal responsibility, known as a fiduciary duty, to carry out the wishes of the trust.
Those wishes can include day-to-day duties, paying taxes, disclosing confidential information at key times, and more.
A trustee:
- May serve either before and after a trustor's death, or only afterwards (depending on the type of trust)
- Is appointed by the person setting up the trust
- Can serve for a longer period of time than the length of the probate process
What are other names for trustee?
Other names for trustee are more rare, but you may see:
- Custodian
- Agent
- Keeper
- Fiduciary
- Steward
Can the Trustor be the Trustee?
The trustor may be the trustee when they are still alive and are working with a revocable trust (one that can be changed). This is usually changed when the trust becomes irrevocable, either by choice or when the trustor passes. If the trustor is serving as the trustee with an irrevocable trust, that can open up some complications, so if you’re considering that for whatever reason it’s time to talk to a lawyer.
Can the Trustor be the Beneficiary?
In certain co-trustor situations… maybe, but the quick advice is that designating yourself to receive assets you put in a trust is a red flag and may ruin most of the tax benefits you’d get from the trust anyway. This is also a talk to a lawyer or tax specialist moment.
Other Trust & Estate Settlement Articles Worth Your Time
All of these link out to other articles and stuff we’ve written in this space, and if you have any questions about how trusts related to probate and estate settlement, definitely shoot us an email at support@weareatticus.biz. Happy to help if we can.
