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In this article, we will answer the question, "what is the definition of a settlor of a trust?" and explain common mistakes made by creators of trust.
What is a Settlor of a Trust?
In an Illinois trust, the "settlor" of a trust is the person who creates the trust. The terms "settlor" and grantor are used interchangeably.
The settor works with an attorney to appoint a trustee and a beneficiary of the trust. The trustee is the person responsible for managing the assets of the trust for the benefit of the beneficiary. The settlor will lay out how assets held by a trust are to be invested and when and how they are to be disbursed to the beneficiary. In a revocable living trust, the settlor often begins as both the trustee and the beneficiary. The trust will typically provide that these roles will pass to other people when the settlor passes. To learn more about how revocable living trusts work, check out our article: Illinois Revocable Living Trusts Explained.
Once the trust has been drafted and executed by the settlor, the settlor (or a third party) must transfer ownership of property to the trust in order to make it effective. This processof placing property into an established trust is often caleld "funding the trust."
Common Mistakes Grantors Make When Creating A Trust
As the settlor can have many important roles in the estate planning process, it is important to avoid some common mistakes within the process. This will speed up and simplify the estate planning process, but it will also possibly lessen the financial, legal and emotional burden once the trust is enacted. Below, we will go over some common mistakes settlors can make and how to avoid them.
- Failing to provide clear directions for the trust. As a Settlor, you need to develop specific directives regarding assets, investments, distribution, etc. If you do not include these vital details, the Trustee will make these decisions for you.
- Settling and forgetting. Settlors often fail to update the trust as life goes on; this can make the trust invalid, inaccurate, and irrelevant. Be sure to update the trust with every major life change and evaluate the trust on a yearly basis, if not quarterly.
- Not having any trust administration at all. This is the most common estate-planning mistake! Take the time to outline your personal and financial affairs to make sure they are handled with care if you were to pass away.
- Not making gifts to reduce your estate’s taxes. A surviving spouse may exclude a gift worth up to $14,000 from estate taxes each year. Gifts made to individuals, groups, or organizations are subject to a $28,000 estate tax savings. By giving assets away, you’re leaving more money in your estate long-term while positively impacting another person or group of individuals.
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