What is a trust? Every trust involves at least three participants:
1) the individual who establishes the trust, known as the Settlor, Trustor, Grantor, or Creator;
2) the individual who manages the assets held in the trust, known as the Trustee;
3) the individual who receives the benefit or enjoyment of the assets held in trust, known as the Beneficiary. The roles and responsibilities of these three individuals are outlined in the trust document.
A common example of these relationships in trust is observed when a parent or grandparent opens a college saving account or Uniform Gift to Minor’s Account (UMGA) at a bank. The grandparent is the Settlor, the bank is the Trustee and the minor is the Beneficiary. The trust document is the one-page UGMA form signed when the account was established.
In more complex trusts, in addition to Settlor, Trustee and Beneficiary, the trust often names someone to act as the Compliance Overseer (some documents refer to this individual as the Trust Protector). As the name implies, the Compliance Overseer is responsible to make sure that the Trustee and Beneficiary faithfully performs all their duties as outlined in the trust document. The Compliance Overseer is often given power to change Trustee and Beneficiary.
The Trustee is a fiduciary. A fiduciary is held to the highest standard of loyalty, full disclosure, obedience, diligence, and accounting. Law demands a fiduciary exercise the highest degree of care and utmost faith in the maintenance and preservation of the assets held in trust and imposes compensatory as well as punitive damages on the erring fiduciary. The Trustee is the individual legally liable for the trust.
To ensure that someone is always acting as the Trustee, a well drafted trust will name a Successor Trustee. The Successor Trustee has no role until the acting Trustee either resigns, refuses to act or is officially removed by the Compliance Overseer. Once the acting Trustee fails to serve the Successor Trustee becomes the acting Trustee responsible for the Trust.