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Starting with the basics, the concept of trust can be explained by how when an individual, a.k.a., Settlor, delivers properties within legal custody of another individual, a.k.a., Trustee. Subsequently, it is the trustee who operates the properties for the advantage of any external 3rd party that’s involved, a.k.a., Beneficiary.
The trust is seen more as a legal responsibility than a distinct legal existence that’s agreed upon between the trustee and the settlor. The trust deed is the official document in which this arrangement gains a framework.
In this article, you will get to understand who is a settlor, trustee, and beneficiary. You will also get to learn more about their roles and categories. But before we dive in deep, let’s begin by learning about each term in brief.
It is the individual who has the property kept for the benefit of the beneficiary. It is the legal responsibility of the trustee to take full liability for the trust assets and manage the property in a great way for the benefit of the beneficiaries. The trust property cannot be kept or used by the trustee for his or her benefit.
A settlor is someone who builds trust by keeping a specific property that he/she possesses into the trust assets. This means that a settlor is a person who sends the properties to the trustee and gives proper guidelines that the property is being kept for the benefit of the beneficiary. A settlor can be identified as a distinct or official entity.
Also known as a 3rd party, a beneficiary is someone for whom the profits and the property of trust are kept and maintained by the individual who identifies as a trustee. In the Trust Deed, the name of the 3rd party is added directly, or the name of the group of individuals is included in the deed. The trust’s settlor is also capable of becoming the beneficiary.
After discussing all the three terms, in brief, it’s now time for you to learn who is a trustee, settlor, and beneficiary, in detail.
The creation of a trust is done by a Settlor. The trust is created by adding a specific property owned by the individual (the settlor) into the trust. The trust property is handed over to another individual, a.k.a., the trustee. The trustee is given all the instructions about the trust property, and it is kept to the advantage of the beneficiaries only.
The eligibility criteria for becoming a settlor are simple. Any individual who is above or equal to the age of 18 years can apply for the role of a settlor. It is considered that once turned 18, a person starts developing a sound mind and also earns the legal capability to take decisions and form a trust as well. In the trust deed, all the provisions and the guidelines related to the trust are incorporated. As per the trust deed, it is the settlor who creates the trust.
A settlor can also be someone who is hired on a professional or personal basis. A personal settlor can be anyone close to you, a family member, or a friend. A professional settlor on the other hand is a very skilled individual that has the best solutions when in crisis. Examples of a professional settlor are an accountant or a lawyer.
You may be wondering that can a settlor also become a trustee at the same time? so the answer to that is, yes, the settlor can become a trustee at the same time. There can also be multiple trustees and settlors of a trust asset, just like when any married couple possesses a trust together. But can a settlor also be a beneficiary? So, the answer to that is that a settlor can become a trust’s beneficiary, but not become the sole beneficiary.
The resolved amount should be handed over to the trustees by the settlor. Then, it is the job of the trustee to file a receipt to issue the evidence of that event. So, to sum up, there 3 functional roles of the settlor:
The Trustees may be the creator, close members or acquaintances, professionals like auditors, lawyers, a board of banks or a Trust firm, or any combination of these individuals.
There are some characteristics, and they are as follows:
The most important thing to remember when functioning as a “trustee” is to understand that the trust asset is not your money or resource. You are keeping them for someone else: the author/grantor (if alive) and also for the beneficiary, who will get it once the author expires. There are some responsibilities of the trustees:
The properties of trustees and executors may be poles apart, but they can be similar individuals. The responsibilities of a will trust’s trustee begin once the monitoring time of the asset is over. The executor’s role begins if the domain’s assets get held on existing will trusts. In such cases, it is the executor who passes the property to the will trust’s trustees. The trustees then become the lawful asset owners and handle them as per the guidelines of the property trust.
The resignation of a trustee is only possible when he/she gets a permit from the court. Either that or the whole group of judicially capable beneficiaries should give the withdrawal consent to the trustee to resign. The court generally allows the trustee to resign if continuing the service becomes a liability for the trustee. In such cases the resignation does not diversely affect the trust, hence the court permits it.
As per the law of trust, comprised under the Indian Trust Act, Section—9, the beneficiary can be anyone competent enough to keep a property. A beneficiary is appointed keeping into consideration the benefit of trust property. Usually, the first and foremost eligibility criteria for a beneficiary is that the individual should be a natural person, but any firm can also act as a trust’s beneficiary. Such a situation generally arises in modern financial transaction structures.
The next point to note in the context of the beneficiary is that any individual that is counted as a minor or is suffering from a mental injury, can also be a beneficiary. In fact, several trusts are made especially for individuals who have those legal drawbacks. Lastly, an unborn child can also become a beneficiary
Now that you are aware of the basic concept of a beneficiary, let’s understand why should we select one at all.
Speeds up the process
Once the author has expired, hiring a beneficiary increases the process of asset distribution. As a beneficiary, it is more stable and laidback to hold properties, rather than to wait for the validation procedure to be executed.
Helps gain clarity
By hiring a beneficiary, it gets clear to you who should keep your trust property when the author passes away.
Counted as a backup, contingent beneficiaries are hired when the primary beneficiary isn’t available or doesn’t exist. If there isn’t any contingent beneficiary or none of them wants the property, then the court decides the fate of the property.
The owner of the record votes or initially selects a beneficiary, such beneficiaries are termed as the primary beneficiaries. After the death of the author, all the interest will be presented to the beneficiary (if he/she is alive).
When talking about England, a trust agreement can’ be limited to a company without obtaining the crown’s license. But this Mortmain Act does not imply on India, and that’s why any Indian corporation can be a trust’s beneficiary.
Any foreign citizen can also apply to become a beneficiary.
Minors as Beneficiaries
If your service works to provide capital to the minors, it becomes even more important for you to connect with a property planning body. Generally, minors are not allowed to be a part of contracts, can’t be property owners, and are not capable of owning any account as well. But still, there are processes to ensure that there is capital for a minor and it is used for their benefit.
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The settlors make trusts by discussing how to turn in a few or all their trust assets to the trustees. Then the trustees handle the trust’s property for a 3rd party, i.e., beneficiaries. So, if you are someone who is looking for a service that would help carry out your legal processes safely, consider us at ODINT Consulting. Our efficient team members know exactly how to fulfill all the accounting and tax duties. We will guide you towards the right path that would remove taxes for the beneficiaries as well as the settlor. So, reach out to us today!
A person who has deceased, and if he/she at the time of their death had the authority to rescind the trust partially, or completely, then that person is known as a deceased settlor.
A settlor is a maker of a trust. Firstly, he/she builds a legal record that has all the rules related to the trust. Secondly, he/she converts the assets into the trust. This process is termed trust funding.
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