Trust Terminology

Grantor

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).

Trust Document

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.)

Trustee

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.

Trust Assets

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.