What is a Settlor?
As is outlined in more detail in another article on this site, there are two types of trust. Broadly, trusts can be either express or implied; that is, they can either be established as a result of an explicit expression of intent from an individual, or they can be created by implication, for example through a court order. The term 'settlor' concerns express trusts.
A settlor is the individual who establishes a trust, transferring assets into it. The process of transferring these assets is known as 'settling', hence settlor. Sometimes, this individual is known as the trustor or grantor.
Ownership of Assets
Clearly, the settlor is the most important party in any express trust. It is this individual who initiates the process of constituting the trust; as it is the settlor that owns the property that will be transferred into the trust, it is only the settlor that can choose to do so, unless they are obliged by law. Once the property has been transferred, however, the settlor will no longer own the legal title to it. Rather, it will be placed under the legal ownership of the trust itself, and will be dealt with by the trustees.There is nothing, however, to stop the settlor from also appointing him or herself as a trustee. Indeed, it is perfectly possible for the settlor to also be the sole trustee and beneficiary. This can be useful in certain tax and asset protection circumstances. More frequently, however, the settlor will assume the trusteeship but direct the affairs of the trust in such a way that they benefit someone else. For example, some parents set up trusts with the intention of providing financial support to their children in later years.
Other Responsibilities
The settlor will be responsible for setting the terms of the trust. This will include details of the assets that are to be transferred into it, and details of the beneficiaries, as well as any conditions upon which the ultimate transference of the assets to the beneficiaries is contingent. The settlor might, for example, state that the assets may only be transferred once the beneficiary has reached a certain age. The settlor has significant freedom when setting these terms; they essentially have free reign, providing that they work within the broad boundaries of the law.When establishing a trust, the settlor must ensure that they can provide three 'certainties': there must be a certainty that the individual wishes to establish a trust; certainty regarding the nature and existence of the assets that are to be placed in trust; and a certainty regarding the identity of the beneficiaries. Aside from this, the most important responsibility of the settlor is to ensure that the relevant assets are transferred into trust; only when this has happened will the trust come into existence in the full legal sense.
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