Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.
Updated April 03, 2024 Reviewed by Reviewed by Marguerita ChengMarguerita is a Certified Financial Planner (CFP), Chartered Retirement Planning Counselor (CRPC), Retirement Income Certified Professional (RICP), and a Chartered Socially Responsible Investing Counselor (CSRIC). She has been working in the financial planning industry for over 20 years and spends her days helping her clients gain clarity, confidence, and control over their financial lives.
A settlor is the entity that establishes a trust. The settlor goes by several other names: donor, grantor, trustor, and trustmaker. Regardless of what this entity is called, its role is to legally transfer control of an asset to a trustee, who manages it for one or more beneficiaries. In certain types of trusts, the settlor may also be the beneficiary, the trustee, or both.
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 develops an addiction to drugs or is convicted of a felony, she can remove that child as a beneficiary.