A settlor and a trustee are two distinct roles, although one person can serve in both capacities. A settlor creates the trust and can reserve important powers with respect to the trust. The trustee is obligated to manage the trust, in accordance with state law, after its creation and until the termination of the trust.
Creating a Trust
While sometimes referred to as a grantor or donor, in California, a person or entity that creates a trust is known as the settlor. The settlor may or may not be the trustee of the trust. For example, if a mother decides to create a trust and names her daughter as the trustee, the mother is the settlor but not the trustee. It is common, however, for the settlor to serve as the trustee. There can be more than one settlor and more than one trustee. If a married couple creates a trust and names themselves as trustees, each spouse is a settlor and a trustee.
Managing the Trust
It is the trustee’s obligation to manage the property held in the trust and to carry out the terms of the trust. The trustee is also bound by rules imposed by California law, even if these rules are not expressly stated in the trust document. A settlor, by contrast, is not responsible for managing the trust unless, of course, the settlor is also the trustee. Upon the death of the settlor, the next trustee named in the trust document takes over the management responsibilities if the person accepts the position of trustee.
Revoking and Modifying the Trust
The power to revoke or modify a trust is almost always reserved for the settlor, as it is the settlor who created the trust and the settlor’s property that is held by the trust. If the settlor also serves as the trustee, then the settlor, as trustee, can revoke or modify the trust. It is possible for a settlor to name another person as trustee and give that person the right to revoke or modify the trust, but this arrangement is rare because it invites the possibility of mismanagement of the trust assets. The power to revoke or modify a revocable trust usually terminates upon the incapacity or death of the settlor.
Because the primary purpose of a trust is to distribute property upon the death of the settlor, or upon the satisfaction of some condition thereafter, California law imposes a number of duties on the trustee of a revocable trust. These duties include handling the trust for the benefit of the trust beneficiaries, protecting the trust property, and dealing with all of the trust beneficiaries impartially. Unlike with the trustee, the settlor has no such duties because the role of a settlor extinguishes as soon as the trust is created.
- Complete Plans for Small and Mid-Size Estates; Continuing Education of the California Bar
- Drafting California Revocable Trusts; Continuing Education of the California Bar