Trusts Series: Can the Settlor Also Be the Trustee?
The trustee and settlor of a trust are important roles. In this article we explain why you might want to appoint the same person for both.
The settlor of a trust is the person who initially sets the trust up. They settle all details of the trust and identify the parties including the trustees and beneficiaries. Because trusts can be complex it is usually advisable to hire a professional to act as settlor. It is also often preferable to hire a professional to act as trustee. This raises the question of whether the settlor and trustee can be the same person.
Who Is the Settlor?
The settlor of a trust is the person who sets the trust up. They will draft any documents that might be required such as a trust deed. The settlor will also identify the trustees and beneficiaries. While anyone can be the settlor of a trust including a friend or family member, it is usually advisable to engage a professional to set up the trust for you. This is because trusts can be complex and have serious consequences for all parties. A professional with experience in creating trusts such as a trust lawyer will understand the complex issues involved.
Additionally, if any complications arise during the creation of the trust, an experienced trust lawyer will possess the knowledge and experience to provide prudent advice and help solve any legal issues. If you choose to have a friend or family member act as settlor, they likely won’t possess this knowledge and experience and so might need to consult a lawyer anyway to help solve any issues that arise.
Hiring a trust lawyer to set up your trust might seem like an expensive option. However, it can help avoid complications in the long term.
Who Is the Trustee?
The trustee is the person who holds the trust property on behalf of the beneficiaries. Trustees are under a fiduciary duty to act in the best interests of the beneficiaries. This may include actively managing the trust property such as by investing funds or selling trust property. It is very important that the trust is managed appropriately and legally at all times. If the trustee does not appropriately manage the trust they may be subject to significant legal liability.
As with the settlor, any person may act as trustee including a friend or family member. However the serious nature of the duties that the trustee must fulfill means that it is often advisable to engage a professional trust lawyer or accountant to act as trustee. These professionals have the knowledge and experience to understand the duties and obligations of a trustee. Additionally, their experience in managing trusts might make them more capable to manage the trust property appropriately and in keeping with the law.
Can The Settlor Also be The Trustee?
Although the settlor and trustee of a trust are two distinct roles, they may be filled by the same person. After creating the trust, the settlor can become the trustee and manage the trust as well. In fact, it is often advisable to have the same person act as both settlor and trustee. This will mean that the trustee has intimate knowledge of all details of the trust including its purpose and any complications that arose in its creation.
There are two rules which apply when appointing the settlor and trustee. Firstly, the settlor cannot be the only trustee. Secondly, neither the settlor nor trustee can be a beneficiary of the trust. These rules help to ensure that the trust will be created and managed in a way that protects the interests of the beneficiaries.
The same person can act as both settlor and trustee of your trust. In fact, this is often advisable as it ensures that the trustee has intimate knowledge of the purpose of the trust and any issues that arose in its creation. If you have further questions about the creation or management of trusts, you might want to speak with a trust lawyer.
Eamon is a legal intern at Lawpath. He is completing a Bachelor of Laws with a Bachelor of Environmental Management at Macquarie University. He is interested in disruption in the legal industry through the use of innovative technology.