Trusts have become one of the strongest estate planning tools in recent years. However, trusts are often more complex than wills, which are the traditional backbone of an estate plan. One important factor in understanding how trusts work is knowing who is involved in a trust. There are three roles in a trust someone can fill: grantor, beneficiary, and trustee. Oftentimes, the same person can be in more than one of these roles at the same time.
Simply put, a trust is a legal entity that holds property for the benefit of someone and contains instructions on how to manage that property. In making that happen, there are three kinds of people who are involved in a trust:
Sometimes called a “settlor” or “trustor,” a grantor is the person who creates the trust and transfers property into it. If you are creating a trust as an estate planning instrument, you would be the grantor of that trust. There can be multiple grantors who create the trust, and it is common to have co-grantors when a married couple creates a trust together.
Under Colorado law, a grantor must be a competent individual older than 18. This is because the grantor must have contractual capacity to enter into a legal obligation.
A trustee is either an individual or an institution who administers the instructions of the trust. Trustees serve in a fiduciary capacity, and must act to fulfill the goals of the trust and on behalf of the beneficiaries. A trust can have multiple trustees, who can either all serve in the same capacity or may have distinct duties in managing the trust.
Depending on whom you choose to serve as trustee, you may want to pay them for their time serving as trustee. If you choose to have yourself serve as trustee while you’re alive or have a close family member as trustee, they may not expect compensation. However, if you choose to use a corporate fiduciary to manage your trust, you will need to consider what kind of compensation you will need to pay them in order to manage the trust.
As with grantors, Colorado law requires trustees to be older than 18. A trustee is a position of great responsibility, and whoever you choose for the role should be someone you trust to carry out your wishes and protect your beneficiaries.
As the name might suggest, a beneficiary is someone who receives benefits from the trust property. This can take a variety of forms depending on your wishes, such as an outright gift of property, annual income generated form trust assets, or discretionary gifts to a beneficiary if you want to provide for someone who cannot handle the property themselves*.
It is common for beneficiaries to have certain rights within a trust, such as the appointment or removal of a trustee, assignment of their rights in the trust to another, and more. What rights beneficiaries should have depends on the facts surrounding one’s family and estate plan, and we suggest speaking to an estate planning attorney to tailor a trust to your goals.
Unlike grantors or trustees, a beneficiary has no age requirement. A beneficiary can be an infant, a charity, or even a pet animal. It is necessary to have a beneficiary for a trust to exist, as under Colorado law a trust and its terms must be for the benefit of its beneficiaries.
Trusts can be an excellent tool for crafting your estate plan. The robust features of a trust bring some complex possibilities to your estate plan. Contact Anzen Legal Group today to book a free consultation and decide if a trust is right for you and your family.