Estate and trust planning is one of the oldest areas of the law, and the terminology that experts use to discuss trusts can be nearly incomprehensible to ordinary people. Most of the time, a plain-English explanation can clarify more arcane legal terms. The concept of a trust settlor, sometimes misspelled as settler, is a lot easier to understand than its name might suggest.
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Who the settlor is
The settlor of a trust is the person who creates the trust. To do so, the settlor does two things. First, the settlor establishes the legal document that contains the trust's terms. Second, the settlor then transfers property into the trust, which is also known as funding the trust.
Technically, once the trust document is signed and the trust funded, the settlor's role is complete. However, in many cases, the settlor also maintains one or more additional roles that continue beyond the initial establishment of the trust.
Revocable trusts and settlors
The most common example of the settlor having multiple roles involves revocable trusts. Also known as living trusts, a revocable trust typically has the settlor also acting as the trustee of the trust as well as remaining one of the trust's primary beneficiaries. With a revocable trust, the settlor usually retains the right to make changes to any of the trust's terms at any time, including even the ability to terminate the trust and take back all of its property.
Even though the settlor maintains substantial control in a typical revocable trust situation, the trust document will clearly state limitations on that power. For instance, if the settlor becomes unable to manage his or her own financial affairs, then a successor trustee can take control of the trust pursuant to its terms. The trust document will often include provisions that state conditions under which power can pass to a successor trustee.
Irrevocable trusts and settlors
With an irrevocable trust, the situation is quite different for the settlor. Most of the time, a settlor will establish an irrevocable trust for someone else's benefit. In that case, the trustee must follow the terms of the trust document, and the settlor does not retain the ability to make changes to the trust after its formation.
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In practice, though, the settlor often has substantial influence in an irrevocable trust's operations. Those who are involved in the ongoing management of the trust typically want to honor the settlor's wishes, and therefore, the settlor's views on certain issues will carry weight.
The term settlor is legal jargon, but the idea behind it is simple. As the person who creates and funds a trust, the settlor is the person who takes action to turn estate and trust planning into reality.
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