(Legal) Word of the Day: Settlor (AKA Donor or Grantor)
Settlor (or Donor or Grantor)
The person who creates a trust is called the settlor (sometimes called the donor or grantor). It is the settlor’s intent which is of paramount importance. It is the intent of the settlor that determines whether a trust has been created.
Here’s a great read with a rundown on the basics of what a trust is:
Intent Is Everything
If a settlor transfers property to a recipient with the intent that the recipient hold the property for someone else, then a trust has indeed been created. If the settlor transfers property with the intent that the recipient use the property for her own benefit, then NO trust has been created.
BONUS WORD! Precatory Trust
What if a settlor transfers property to a recipient with just a wish that the recipient use the property for the benefit of someone else, but does not impose any legal obligation? In such a situation, no legal trust is created. Instead, this is called a precatory trust, but is not a trust at all, because the settlor placed no legal responsibilities on the recipient. A precatory trust is, again, not a trust and is not governed by the law of trusts.
Three Easy Hypotheticals
- Let’s look at three quick examples to make this clear. Mackensie gives stock to Julie. Mackensie intends that stock be for Julie’s own use. Mackensie is NOT the settlor of a trust, because no trust has been created.
- Mackensie gives a vacation house to Maddie, intending that Maddie hold the house for the benefit of Zach. Mackensie is the settlor of a trust. If a settlor transfers property to a recipient with the intent the recipient hold the property for the benefit of someone else, then a trust is created.
- Mackensie gives a coin collection to Parker, just wishing that Parker would hold the coins for Tom. This is a mere precatory trust, not a trust at all, because the settlor is not imposing any legal responsibilities on the recipient.
Questions? Let’s Talk.
This hopefully clarified the important role of settlor to assist your estate planning decisions, but you may have questions…which is great! Contact me to discuss further the status of your estate plan and decisions regarding your trust. Reach me by email at firstname.lastname@example.org or phone at 515-371-6077.