Trustor

A trustor is an individual or organization that gifts funds or assets to others. Trustors do this by transferring his or her fiduciary duty to a third-party trustee, who maintains the assets for the benefit of the beneficiaries.

Also referred to as a grantor, the trustor is the party that generally donates or gifts assets to others.

For example, the public SEC Form 3 for Paycom Software, filed April 26, 2018, detailed company insider Bradley Scott Smith’s statement of ownership of securities. The form noted that Mr. Smith holds his securities in the Bradley Scott Smith Revocable Trust, as of October 30, 2017. This trust benefits Mr. Smith, his spouse, and his children. Mr. Smith is the trustor of the account. His spouse is a co-trustee.

The concept of fiduciary duty is central to the relationship between the trustor and trustee. The trustor transfers his or her fiduciary to a trustee when turning over his or her assets. Fiduciaries are legally authorized to hold assets in trust for another person and obligated to manage these assets for the benefit of the other person rather than for his or her own profits.

It nearly goes without saying that trustees, pension administrators, custodians and investment advisors are all prohibited from engaging in any fraudulent or manipulative behaviors when working with beneficiaries.

While trusts are usually set up to benefit those who will inherit family or other wealth, sometimes these relationships can become sour, creating challenging legal and ethical situations. For example, in the case of the Rollins family (founders of the pest-control firm Rollins Inc.), a lawsuit surrounding the family trust unfolded after the family trustor, O. Wayne Rollins, passed away in 1991. His nine grandchildren fought their father and uncle (who were named trustees) in court for nearly a decade about how the trust was handled. The grandchildren claimed that their father and uncle violated trust documents and shifted more power to themselves, instead of acting as true fiduciaries and evenly distributing the wealth among all of the grandchildren.

There are several additional ways in which trust situations can end up far more complicated than the trustor intended. Not only can investments within the trust underperform, leaving beneficiaries without the assets they had been expecting, but trustors can change their minds about how they want their trusts distributed or investments managed. In revocable trusts, this is doable; however, if the trust is irrevocable, it can become extremely difficult if not impossible to make changes even if trustors regret their decisions.