Trust Roles Easily Explained: Grantor, Trustee, and Beneficiary
Trust Roles Explained Easily: Whether you're setting up a trust or are currently an interested party in a an existing trust, understanding who does what is essential.
When it comes to estate planning, trusts can be powerful tools—but they’re only as effective as the people involved. Whether you’re creating a trust or have been named in one, you need to understand three key roles: grantor, trustee, and beneficiary.
Here’s how each role works, how they relate to one another, and what to watch out for.
The Three Key Roles in a Trust
1. Grantor (also called Settlor)
The grantor is the person who creates the trust and decides what goes into it and how it should be managed.
What the Grantor Does:
Creates and funds the trust
Sets the rules for how assets will be distributed
Names the trustee and beneficiaries
Can often serve as a trustee in a revocable trust
Example:
Sarah creates a revocable living trust and transfers her home and investment account into it. She sets terms for how her assets should pass to her children. Sarah is the grantor.
2. Trustee
The trustee is the person or institution responsible for managing the trust and following the rules set by the grantor.
Trustee Responsibilities:
Manage and safeguard trust assets
Follow the trust document’s instructions
Distribute funds to beneficiaries
Maintain records, file taxes, and act as a fiduciary
Example:
Sarah establishes an Irrevocable Trust and names her sister Emily as trustee. The trustee is awarded specific powers over the trust assets, such as establishing an investment account for the trust, selling real estate, making gifts to beneficiaries, hiring an accountant to prepare the tax return for the trust, and eventually distributing the assets accordingly. Emily is the trustee.
3. Beneficiary
The beneficiary is the person (or group) who receives the benefit of the trust, either now or in the future.
Beneficiaries Typically:
Receive income or assets according to the trust terms
Do not control how the trust is managed
Example:
Sarah’s children, Ava and Ben, are listed as beneficiaries. The trust states they’ll receive assets at age 30 but the trustee is allowed to distribute money from the trust to Ava and Ben to provide financial support for education, health, shelter, and living expenses. Ava and Ben are the beneficiaries.
Can One Person Fill Multiple Roles?
Yes. In many revocable trusts, the grantor can also be the trustee and beneficiary while alive. However, they must name a successor trustee to step in when needed.
In irrevocable trusts, the grantor typically gives up control and cannot serve as trustee or beneficiary.
For trusts that name someone beside the grantor as a trustee, it’s common that the trustee may also be a beneficiary of the trust.
Example:
Sarah establishes an Irrevocable Trust and names her daughter, Ava, as Trustee. Ava is also a beneficiary of the trust with her brother Ben.
Why These Roles Matter
Choosing the wrong person or failing to clearly define roles can lead to:
Disputes among family members
Over-providing or under-providing powers to the trustee
Mismanagement of assets
Delays in distribution or tax problems
Planning Tips
Review your trust documents and confirm who’s named in each role
Confirm all of the powers you have provided to the trustee
Name backup (successor) trustees in case your primary can’t serve
Pick a trustee who is reliable, impartial, and financially competent
Make sure your beneficiaries are clearly defined and up to date
Common Mistakes to Avoid
Naming a trustee who lacks the time or skills to manage finances
Forgetting to update your trust after a major life event (death, divorce, birth)
Assuming your trustee can make decisions outside the written terms (they can't)
Not reviewing your trust with your attorney after major tax law changes
Final Thought
Trusts only work when the right people are in the right roles—with a clear roadmap to follow. If you haven’t reviewed your trust recently, now is a great time.
About Michael……...
Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.
Frequently Asked Questions (FAQs):
What is a grantor in a trust?
The grantor (also called the settlor) is the person who creates and funds the trust. They decide what assets go into it, set the distribution rules, and name the trustee and beneficiaries. In many revocable trusts, the grantor may also serve as the trustee during their lifetime.
What does a trustee do?
The trustee manages the trust’s assets according to the grantor’s instructions. Responsibilities include safeguarding property, making distributions to beneficiaries, maintaining records, filing taxes, and acting in the best interests of the beneficiaries. The trustee must follow the trust document exactly as written.
Who are the beneficiaries of a trust?
Beneficiaries are the individuals or organizations who receive the benefits of the trust, either through income distributions, asset transfers, or both. They do not control how the trust is managed unless specifically granted that authority.
Can one person serve as grantor, trustee, and beneficiary?
Yes, in many revocable living trusts, one person can fill all three roles. However, for irrevocable trusts, the grantor typically gives up control and cannot act as trustee or beneficiary. In some cases, a trustee may also be a beneficiary if allowed by the trust terms.
What happens if the trustee is also a beneficiary?
It’s common for a trustee to also be a beneficiary, especially in family trusts. However, this arrangement can create conflicts of interest, so the trust should clearly define limits on the trustee’s powers to ensure fair treatment of all beneficiaries.
Why is choosing the right trustee important?
The trustee controls how and when trust assets are managed and distributed. Selecting someone unreliable or inexperienced can lead to mismanagement, family disputes, or tax problems. A trustee should be financially responsible, impartial, and able to follow complex legal instructions.
Can a trust have more than one trustee?
Yes. Co-trustees can share responsibilities, which can help balance workload and oversight. However, having multiple trustees can also slow decision-making, so coordination and clear communication are essential.
What is a successor trustee?
A successor trustee is a backup who steps in if the primary trustee is unable or unwilling to serve. Naming one (or more) successor trustees ensures that the trust continues to operate smoothly without court involvement.
What are common mistakes people make when setting up a trust?
Frequent mistakes include naming an unqualified trustee, failing to update the trust after major life changes, misunderstanding the trustee’s authority, and neglecting to review the trust after tax law updates.
Why is it important to review your trust regularly?
Laws, family circumstances, and financial situations change over time. Reviewing your trust every few years—or after major events like marriage, divorce, or the birth of a child—ensures that your intentions remain clear and your plan stays effective.
Divorce: Make Sure You Address The College Savings Accounts
The most common types of college savings accounts are 529 accounts, UGMA, and UTMA accounts. When getting divorce it’s very important to understand who the actual owner is of these accounts and who has legal rights to access the money in those accounts. Not addressing these accounts in the divorce agreement can lead to dire consequences
The most common types of college savings accounts are 529 accounts, UGMA, and UTMA accounts. When getting divorce it’s very important to understand who the actual owner is of these accounts and who has legal rights to access the money in those accounts. Not addressing these accounts in the divorce agreement can lead to dire consequences for your children if your ex-spouse drains the college savings accounts for their own personal expenses.
UGMA or UTMA Accounts
The owner of these types of accounts is the child. However, since a child is a minor there is a custodian assigned to the account, typically a parent, that oversees the assets until the child reaches age 21. The custodian has control over when withdraws are made as long as it could be proven that the withdrawals being made a directly benefiting the child. This can include school clothes, buying them a car at age 16, or buying them a computer. It’s important to understand that withdraws can be made for purposes other than paying for college which might be what the account was intended for. You typically want to have your attorney include language in the divorce agreement that addresses what these account can and can not be used for. Once the child reaches the age of majority, age 21, the custodian is removed, and the child has full control over the account.
529 accounts
When it comes to divorce, pay close attention to 529 accounts. Unlike a UGMA or UTMA accounts that are required to be used for the benefit of the child, a 529 account does not have this requirement. The owner of the account has complete control over the 529 account even though the child is listed as the beneficiary. We have seen instances where a couple gets divorced and they wrongly assume that the 529 account owned by one of the spouses has to be used for college. As soon as the divorce is finalized, the ex-spouse that owns the account then drains the 529 account and uses the cash in the account to pay legal fees or other personal expenses. If the divorce agreement did not speak to the use of the 529 account, there’s very little you can do since it’s technically considered an asset of the parent.
Divorce agreements can address these college saving accounts in a number of way. For example, it could state that the full balance has to be used for college before out-of-pocket expenses are incurred by either parent. It could state a fixed dollar amount that has to be withdrawn out of the 529 account each year with any additional expenses being split between the parents. There is no single correct way to address the withdraw strategies for these college savings accounts. It is really dependent on the financial circumstances of you and your ex spouse and the plan for paying for college for your children.
With 529 accounts there is also the additional issue of “what if the child decides not to go to college?” The divorce agreement should address what happens to that 529 account. Is the account balance move to a younger sibling? Is the balance distributed to the child at a certain age? Or will the assets be distributed 50-50 between the two parents?
Is for these reason that you should make sure that your divorce agreement includes specific language that applies to the use of the college savings account for your children
For more information on college savings account, click on the hyperlink below:
About Michael……...
Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.
