Settlor Defined Legally

Breaking down a Settlor

Trusts are designed to hold money, investments, or property for various purposes. Different types of trusts — testamentary trusts, living (inter vivos) trusts, revocable trusts, irrevocable trusts, and more — protect assets in different ways. Trusts can facilitate a smooth and speedy transfer of assets upon death, eliminate probate costs, minimize estate taxes, and ensure that the settlor’s assets are used in the way intended. For example, a trust can allow a parent to make sure a child doesn’t squander an inheritance. Trusts also let the settlor decide, at a time when they are fully mentally capable, what would happen to their assets in the event of mental disability or incapacity.

Setting up a simple trust can be an inexpensive task that the settlor can accomplish with self-help legal forms or a more complicated process involving an attorney and costs of up to $2,000. If a bank or trust company is appointed as trustee, there are also administrative costs to maintain the trust over time.

To see how the settlor’s role works, let’s consider an example of a revocable living trust. The settlor, Hailey, establishes the trust. She does this instead of writing a will to determine what will happen to her assets after she passes away. That way, when Hailey passes away, her assets won’t have to go through probate, and since the process of distributing trust assets doesn’t involve the courts, her assets won’t become a matter of public record.

She places all of her assets — her home, her beach condo, various family heirlooms and several investment accounts — into the trust and retitles these assets in the trust’s name. For the trustee — the person or company that will manage and distribute the trust assets — Hailey chooses a trust company. The trust’s beneficiaries upon her death will be her three children, but while she is alive, Hailey will be the beneficiary even though she is also the settlor. Because she has chosen a revocable living trust, Hailey can make changes to it as long as she is alive. For example, if one of her children becomes addicted to drugs, she can remove him as a beneficiary so he can’t use her assets to finance his habit.