Definition
A settlor is the person who creates a trust by transferring their assets into it and setting the rules for how those assets should be managed and distributed to beneficiaries.
What Does Settlor Mean?
In UK trust law, a settlor is the person who creates a trust by transferring ownership of their assets to trustees to hold for beneficiaries. You might also see the term "trust creator" or, in American documents, "grantor." According to HMRC's Trusts, Settlements and Estates Manual, a settlor is "any person by whom the settlement was made" or who has "provided property or funds directly or indirectly for the settlement." The settlor can establish a trust during their lifetime (an inter vivos or lifetime trust) or through their will (a testamentary trust). The settlor decides what assets go into the trust, who manages them (the trustees), who benefits (the beneficiaries), and under what conditions distributions occur.
The settlor's active role is concentrated at trust creation. Once the trust deed is signed and assets are transferred, the settlor typically steps back. For example, Emma, age 45, creates a trust with £200,000 for her two children, appointing her sister and a solicitor as trustees. She specifies children can access funds for education immediately but inherit capital at age 25. After signing, Emma's role ends – the trustees manage investments according to her instructions. However, the Recognition of Trusts Act 1987 confirms settlors can reserve certain powers, such as replacing trustees or amending terms, depending on whether the trust is revocable (changeable) or irrevocable (permanent).
Understanding "settlor-interested" trusts is crucial for tax planning. These exist when the settlor or their spouse can potentially benefit from the trust. If Sarah sets up a trust for her children but includes a clause allowing funds for family holidays she'd attend, HMRC may treat the trust's income as Sarah's own for income tax purposes under HS270 guidance. This is why many people creating trusts for children in their wills ensure they cannot personally benefit – the trust only activates after death. The settlor's decisions at the outset determine whether the trust achieves its goals effectively.
Common Questions
"Can a settlor also be a trustee of their own trust?" Yes, settlors can be trustees, which is common for family trusts. However, being both means you retain control, which can have tax implications. Professional advice is essential for "settlor-interested" trusts.
"What happens to the settlor's role after the trust is created?" Once the settlor establishes the trust and transfers assets, their active role typically ends. Trustees take over management according to the trust deed. However, settlors can reserve powers like replacing trustees or amending terms.
"Is the settlor the same as the executor in a will trust?" Not quite. The settlor is the person whose will creates the trust. Executors administer the estate and transfer assets into the trust after the settlor's death, then trustees manage it.
Common Misconceptions
Myth: Once I create a trust as settlor, I lose all access to my assets forever.
Reality: This depends on the trust type. Revocable trusts allow you to change terms or dissolve the trust during your lifetime. Irrevocable trusts generally cannot be changed without beneficiary consent, but you can reserve specific powers like replacing trustees.
Myth: Only wealthy people need to understand settlors and trusts.
Reality: Trusts are common in ordinary wills. Many parents include trusts to protect inheritances for young children. Property protection trusts help ensure family homes pass to children rather than being consumed by care fees. With inheritance tax starting at £325,000, modest estates benefit from trust planning.
Related Terms
- Trust: The settlor creates the trust where trustees hold assets for beneficiaries.
- Trustee: While the settlor creates the trust and sets terms, the trustee manages the assets.
- Beneficiary: The settlor chooses who benefits and under what conditions.
- Lifetime Trust: A trust created by the settlor during their lifetime.
- Will Trust: A trust created through the settlor's will, taking effect on death.
Related Articles
- Setting Up a Trust for Your Children in Your Will: Learn how to act as a settlor when creating a will trust.
- What Is a Trust? (And How Do They Work in Wills?): Understand how the settlor's role fits with trustees and beneficiaries.
- Using Trusts to Protect Your Estate: Discover why settlors create trusts for asset protection and inheritance tax planning.
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Legal Disclaimer: This glossary entry provides general information about UK legal terminology and does not constitute legal advice. For advice specific to your situation, consult a qualified solicitor.