Factors to Consider When Setting Up a Settlement Trust
When setting up a settlement trust, you must consider various factors before making your final decision. These factors include the settlor’s identity, the trustee’s name, and the beneficiaries. It is also important to consider whether the trust will have investment responsibilities and whether the beneficiaries will have to pay taxes or debts.
Settlor
They are identifying the settlor when setting up a settlement trust is an important step in the legal process. Often, the settlor may be a family member, close friend, or professional advisor. However, it is very important that the settlor not be a beneficiary or a unitholder in the trust. In most cases, the settlor’s role is to transfer property into the trust (known as a gift or settlement). After the initial Settlement Plan, the settlor will not be involved with the trust again.
Trustee
When you set up a settlement trust, you should identify the person who will act as the trustee. This person is called the “settlor.” It could be the testator, another person, or both. A settlement trust can be set up with more than one person as a settlor, and each person is entitled to contribute a portion of the trust property. However, this person can withdraw or revoke a contribution at any time. Likewise, there can be spending provisions in the trust that restrict the transfer of beneficiary interests to other persons.
The trust’s beneficiary needs to know they are not allowed to use the funds for personal gain. In addition, the trustee should be independent of the beneficiary. In some instances, trustees may have a conflict of interest and act against the interests of the beneficiaries. A trust that has a rogue trustee could be deemed illegitimate and terminated.
Beneficiaries
The grantor of a settlement trust is usually the person who funded the trust, but in some cases, there are multiple grantors. In such cases, the grantor is also known as the trustor or the settlor. The grantor can revoke the trust and may do so at any time. The trust should clearly state the wishes of the grantor.
Choosing beneficiaries can be difficult, especially if your family dynamics are complicated. You may need to find out who you would like to leave your estate to or feel pressure from family members to designate a beneficiary. In these situations, it can be helpful to name a trust that will provide for the beneficiaries’ wishes.
Investment Responsibilities of the Trustee
The trustee may only act on direction from the Investment Adviser. The trustee may not participate in transactions if the Investment Adviser does not provide written direction. This may make the trustee less than ideal. To ensure a smooth investment process, the trustee must have the necessary resources and knowledge to manage the trust.
The trustee should manage the trust in a responsible and unbiased manner. It should invest the trust’s assets in a way that preserves the principal and does not favor any beneficiary. It should also comply with rules concerning self-dealing, the duty of loyalty, and diversification.
Power of Appointment of the Trustee
When you are planning on using a settlement trust as your estate plan, you should be aware of who holds the trustee’s power of appointment. Depending on the power of appointment, the trustee may be a person or a corporation.
The trustee must act in the best interest of the beneficiaries and may elect or appoint managers and directors to run the corporation. Sometimes, a court appoints a special fiduciary for the trust.
