Trust parties include:
There are several different terms used for the person who creates a trust. “Grantor” is the term used under the Internal Revenue Code. “Trustor” was used in California prior to the current Trust Law taking effect in 1987. The new Trust Law uses the term “Settlor” so this may be more appropriate but any of these terms may be used. There can be several settlors creating the same trust.
The settlor’s control is exercised primarily through the trust terms determined by the settlor, although the settlor may also retain certain powers during life.
The “trustee” is the person who holds legal title to the trust property (also called trust assets, trust estate, “res” or “corpus”). There can be several trustees (“cotrustees”) serving at the same time.
When property is held in trust, the ownership is bifurcated, or split, so that the trustee is said to hold legal title, while the beneficiary is the equitable owner.
The trustee has the duty to hold the trust property, to preserve it, and to make it productive. On acceptance of the trust, the trustee has a duty to administer the trust according to the trust instrument. The trustee has a general duty to administer the trust according to the “prudent person” rule and to invest and manage trust assets according to the “prudent investor” rule, unless the trust provides otherwise. This latter rule requires that the trustee exercise reasonable care, skill, and caution, in making and implementing investment decisions as a prudent investor would, considering the purposes, terms, distribution requirements and other circumstances of the trust.
The trustee has a duty to account to the beneficiaries, at least annually, at termination of trust, and on change of trustees. While revocable, there is no duty to account to beneficiaries but rather to the person holding the power to revoke, when that person is competent. Consequently, there is typically no duty to account when the settlor is serving as trustee. When the settlor is not serving as trustee, the trustee must still account to the settlor who retains the power to revoke, unless the settlor becomes incompetent, at which point the trustee must account to the beneficiaries.
The “beneficiary” is the person for whose benefit the trust property is held. There can be several beneficiaries at once. A beneficiary can be an individual or a class of persons.
A beneficiary is specifically defined as a person who has any present or future interest in the trust, whether that interest is vested or contingent. In addition, any person entitled to enforce a charitable trust is considered a beneficiary.
Beneficiaries are often classified as either income beneficiaries or remainder beneficiaries, depending on the nature of their beneficial interest. The beneficiary has the right to income or principal or both, as provided in the trust instrument.
As the beneficiary has only equitable ownership and not legal title, the beneficiary cannot bring an action as titleholder but may bring an action to compel a trustee to commence an action or defense.
A beneficiary may waive its right to an accounting, but may withdraw that waiver at any time.
Duties of Trustee toward Beneficiary
Each beneficiary has a present equitable ownership interest in the trust property. The trust must be administered solely for the benefit of the beneficiary, and if there is more than one beneficiary, trustee has a duty to deal impartially with them.
A violation of a trustee’s duty toward a beneficiary may constitute a breach of trust for which a beneficiary may commence a proceeding to compel performance, or obtain redress, or remove the trustee.