What Is A Trustor?

Organizations that establish and open a trust are referred to as trustors. The trustors could be either a single person, a married couple, a company, or an organization responsible for adding assets to the trust. They may accomplish this role by giving other people money, gifts, and property, often through trust administration. 

Typically, trusts are created by trustors as part of their estate planning. To do this, trustees delegate their fiduciary responsibility to a third-party trustee, who manages the trust’s assets to benefit the beneficiaries.

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The Trustor: An Overview

In the case of illness or death, trust administration is a financial service that enables private persons and corporate entities to conserve, manage, and transfer assets. Money, real estate, automobiles, equities, life insurance policies, debts, and personal properties, which include artworks, jewelry, and valuables, are frequently used in the administration of trusts.  

A trustor is someone who creates trust. This person, also known as a settlor or grantor, transfers the fiduciary responsibility to another person or business, called the trustee. To decide on the creation and specifics of a trust, both parties discuss and agree.

Trustees frequently create trusts for a multitude of causes. The use of trusts enables the distribution of money among family members, the protection of assets, the security of the finances of younger generations, the minimization of taxes, and preferential tax treatment upon death.

The connection between the trustor and trustee is fundamentally based on the idea of fiduciary obligation. When passing over their assets, the trustor assigns a trustee this duty. 

Fiduciaries are legally permitted to hold assets in trust for another person and are required to handle those assets to serve that person’s needs rather than their own financial gain. Because of this, you must understand that while you work with beneficiaries, trustees, trust administrators, guardians, and financial advisors are forbidden from engaging in fraudulent or deceptive behavior.

What Is A Trustee?

A trustee is a person or business that holds and manages assets or property on behalf of another party. A trustee may be appointed for various reasons, such as in the event of bankruptcy, for managing assets on someone else’s behalf under certain retirement or pension programs. 

Trustees have a fiduciary duty to the beneficiaries, which means they manage their assets to their most significant advantage. They should and must always make judgments that favor the trustor’s beneficiaries.

The Trustee: An Overview

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A trustee is a person or entity holding the legal title to a single item or a collection of assets on the grantor’s behalf. A trust, in which the trustee has title to the trust’s assets for the beneficiaries, grants the trustee this legal title. Beneficiaries, by the way, are the parties who benefit from the trust.

Accordingly, a trustee is in charge of effectively managing all assets and property put in the trust on behalf of the beneficiaries. The trustee’s responsibilities are written down in the trust agreement and are determined by the nature of the assets held in the trust.  

For instance, the trustee will be responsible for ensuring that any rental properties held by a trust designed to generate revenue are supervised, preserved, and growing.  This makes trust administration so convenient – it makes things much easier for the trustor and the beneficiaries.

When a trust is composed of other investments like stocks, trustees should supervise and manage them together with the other financial accounts of the trustor. Trustees must set aside their interests, convictions, and prejudices to act in the trust’s best interest since they have a fiduciary obligation to the trust’s beneficiaries.

What Is A Beneficiary?

A beneficiary is a person or organization named to profit from property that belongs to someone else. These assets are frequently given to beneficiaries as a part of an inheritance. 

Documents like life insurance policies, retirement accounts, stocks, bank accounts, and other financial instruments may designate a beneficiary. This is why your financial assets must have beneficiaries designated so they can be allocated according to your preferences after your passing.

The Beneficiary: An Overview

Anybody or any group of people specified as beneficiaries will get the assets of the trustor upon death. The trustor may impose certain restrictions on how a property should be distributed. In some instances, the beneficiaries may have to meet particular age requirements or get married before taking ownership of their inheritance.

Additionally, when a recipient inherits certain financial assets, there may be tax repercussions. That’s why it’s helpful to know that while the principal of most insurance plans is not taxed, the accumulated interest may be. This is true if a person is a life insurance policy beneficiary.

If you designate beneficiaries on your bank accounts, the financial institution that owns the assets may be able to decide how to distribute them. A will’s property may spend years in probate if beneficiaries are not named in the will. It could give your state of residence exclusive discretion over how to divide your assets.

In either scenario, the beneficiaries of the money you intended to leave behind could not get it. Or, they could have to wait a very long time. 

Here’s a warning.  When you die without a will, you are considered intestate, and your estate or assets are dispersed according to state inheritance rules rather than necessarily to the beneficiaries you have specified.

Types Of Beneficiaries

Anybody or any group of people specified as beneficiaries will get the assets of the trustor upon death. The trustor may impose certain restrictions on how a property should be distributed. In some instances, the beneficiaries may have to meet particular age requirements or get married before taking ownership of their inheritance.  Again, trust administration is helpful in this situation.

Primary

The first beneficiary selected by a financial account’s trustor is the primary beneficiary. This individual or organization will get all the assets in an account, even though additional beneficiaries may also be specified in estate records.

Contingent

A contingent beneficiary is a secondary beneficiary. They receive the account benefits only if the primary beneficiary is no longer living or cannot be located. You can name more than one contingent beneficiary and how the assets would be divided between them.

Why Trust Administration Is A Practical Option

Families and trustees need to be aware of the administrative tasks and costs associated with trust administration.  The most frequent justifications for using this kind of trust are to reduce estate taxes, certain assets for the surviving spouse, and protect the estate’s share from being divided in two by divorce or remarriage. 

The vital thing to remember is that, by creating a trust, the individual or couple who does so will avoid probate, and there may be estate tax savings resulting from the estate plan.

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Suppose a trust has to be divided or allocated into smaller portions for beneficiaries. In that case, the first step in trust administration is to create an administrative trust bearing its tax identification number for accounting purposes. 

The trust is a necessary document, and the individual or couple that sets it up can avoid probate. The probate procedure is a lengthy process. The fees you could have paid for that procedure could cover the trustor’s funeral costs, the final medical costs, the bills, and other administrative costs like attorney and accountant fees. To keep track of all charges, the succeeding trustee usually opens a new bank account under the “administrative” trust name.

Other Tasks Fulfilled In Trust Administration

Aside from the things mentioned above, the person appointed for trust administration also fulfills these tasks. Whether you are the trustor, trustee, or beneficiary, you must be familiar with these things because you are all involved in a living trust.

  • Announce the trustor’s passing to the beneficiaries and legal heirs. 
  • Obtain the grantor’s trust and sub-trusts an IRS Tax Identification Number. 
  • Submit the final income tax return of the deceased trustor. 
  • Handle the estate tax return.
  • File a yearly trust income tax return for the entire duration of the trust. 
  • Publish a formal announcement of the trustor’s passing in a local paper. 
  • Preserve and marshal all the assets of the trustor for the benefit of the beneficiaries. 
  • Create a separate trust bank account. 
  • Pay the trustor’s last financial obligations.
  • Collect the proceeds of a life insurance policy.

Conclusion

Trust administration involves filing essential documents, managing assets, and distributing properties. This role is time-sensitive and can often be complex. That is why you need someone reliable and capable to take on this duty.

Your trustee, who will handle trust administration, must shoulder fiduciary duties such as carrying out the trustor’s last wishes. They must also fulfill their other responsibilities, like paying taxes and managing investments. Trustees efficiently execute the terms of the trust so the beneficiaries can promptly receive their share of the trustor’s assets.

Are you ready to prepare a living trust? Contact Weiner Law to book a complimentary evaluation with their competent trust administration lawyers. Weiner Law is a highly esteemed estate planning firm based in San Diego, California. They will ensure to build an estate plan that fits your unique circumstances and fulfill your last wishes.