Roles of creator, trustee, and beneficiary
The required trust participants are:
1) Creator (also known as Settlor or Grantor)
2) Beneficiary [s]
3) Trustee (cannot be family-related to the Creator)
4) Second current Trustee or Successor Trustee
[The 2 trustees can be 2 friends or 1 friend and1 family member]
Optional additional officers can be:
1) Manager [if settlor, you would be executive manager]
2) Protector [non-related to settlor or trustee]
3) Other titles if lots of resources and people are involved
You, the client setting up the trust, can be EITHER:
1) Creator/Settlor, Beneficiary, and Manager, OR
In both cases, you need other people for the other roles. That's very standard in all trusts. You cannot play all of those roles. That would make the trust invalid and totally vulnerable, which would defeat the purpose.
In both cases, you can end up with practical command and total asset protection. In both cases, you can satisfy all of your, business, commercial, investment, social, humanitarian, professional, and other affairs via the trust, with far greater freedom than in your personal name and with far greater freedom than with statutory entities or inferior common law trusts.
Benefits of Being the Creator (Settlor or Grantor), Beneficiary, and Manager
If you choose this option, you are choosing to wear three hats simultaneously. As settlor, you are relinquishing control. Otherwise it is not a valid trust, and offers no protection. Now you can also play other roles at the same time. As beneficiary, you have some say in the trust's affairs. And especially as manager, you have some control, with trustees’ approval, over the assets in, assets out, and other day to day functions of the trust.
The benefit of the first option (Creator (Settlor), Beneficiary, and Manager) is that the structure is stronger and harder to challenge by potential would-be attackers. This is because you, the person setting up the trust, are clearly NOT the trustee, and thus you have irrevocably turned over your assets legally to the trustee(s). There is then an invincible wall shielding the assets in the trust from any personal liabilities or judgments that may ever occur against you. This arrangement is better for people who have little or no experience with common law trusts and who do not possess expertise in asset protection.
It is necessary here to distinguish between legal control and practical control. Let’s use an automobile as an example. Let’s say you give the title of your car to your friend, but your friend allows you to continue using the car. Thus you have practical control – you have the keys, you know where the car is kept, you take care of it, and so on. Your friend only has legal control, but if your friend is a true friend, s/he would never try to use that legal control against you.
Like that, you as settlor, beneficiary, and manager of the trust, have practical command of it. Your friend, the person you appoint as trustee, has legal control, via title, but would never actually exercise that control unless you ask him or her to do so.
The disadvantage with this option is that if you wish to operate a bank account for the trust and be signatory on it, whoever you choose to be trustee will also have to be signatory. This can be an inconvenience if you don’t live near each other, because most banks require that signatories physically appear in the bank to sign on the account opening documents.
However, you need not worry that the other person you appoint as trustee "needs to be trusted" with your money, because depending on the bank’s policies, with many banks you can arrange for yourself to be co-signatory on any bank accounts as manager of the trust. You can arrange to be in control of that. So, the trustee can have a minimal involvement, with minimal practical influence, even though the trustee would have legal control.
The reason you WANT them to have legal control is to make it a valid trust, and to remove from yourself the ability of any court to force you to turn over the trust’s assets based on any personal liabilities or judgments against you. If any such attacker were to try to make you give up the trust’s assets to satisfy some claim against you, you could honestly show that you have no legal control over the trust. The trustee does, and the trustee is most certainly not going to turn over the trust’s assets. That is called “bullet proof asset protection”.
You might ask, could claimants against the trustee, if any exist, make the trust pay for personal liabilities against the trustee? The answer is no, because the trustee too, is simply performing a job as trustee. The trust is not owned by anyone or anything . . . it is sovereign, and stands on its own, as an independent lawful entity. So, even the trustee cannot be compelled to give the trust’s assets to satisfy his or her personal liabilities, as long as he has not created a breach of trust.
By the same token, the trustee personally cannot be compelled to pay for any liabilities that the trust may incur.
The other disadvantage to this arrangement is that any time there is an important document to sign for the trust, such as when a major asset is transferred into or out of the trust, you will need to get the trustee’s signature. But this is not a big deal if the trust doesn’t engage in major transactions very often.
So those are the main benefits and disadvantages of being settlor, beneficiary, and manager, and appointing someone else as trustee. We have considered your role as settlor and manager. Now let’s look at your role as beneficiary.
The beneficiary is the person on whose behalf the assets are being held, but whether the assets are ever actually distributed to the beneficiary is once again dependent upon the best judgment of the trustee. The criteria for managing the role of the beneficiary are all discussed in the trust itself, and in the manual. If you are both the settlor and the beneficiary, then it is up to the rules of the document and the trustees’ discretion. Thus it is best for you to clearly and completely communicate your wishes to the trustee when you first open the trust and irrevocably turn over control of the assets to the trustee(s).
The only other important role is the second trustee. All trusts must have more than one trustee, in case something happens to the first one. This is especially required by banks, if you open a bank account for the trust. Many banks are satisfied with a successor trustee as the backup trustee. The bank will want a backup trustee in case anything happens to the primary trustee, because the bank is liable for having the responsible party signing on bank documents. The manager can be signatory as well, if the trustee authorizes it, but the bank legally looks to the trustee as the lawful authority on the account.
Whether you appoint a second current trustee or a successor trustee is up to you. If it is a small trust, meaning it doesn’t have much in the way of assets or activity, then perhaps a second current trustee is not needed. A second current trustee may be more merited if the trust has a lot of activity and needs more officers to assist. Or a second current trustee could be desirable if the primary trustee has a colleague, business partner, or friend with whom he or she wishes to work and share control. The second trustee has to be non-family-related to the primary trustee.
If you have children or others whom you would like to inherit control of the trust when you are gone, then you can appoint one or more of them as successor trustee(s). Then he/she/they would instantly inherit legal control of the trust when the primary trustee dies, leaves, disappears, resigns, or otherwise becomes unavailable or unreachable.
Please note that if you are settlor, beneficiary, and manager, then the trustee that you choose cannot be a spouse or close blood relation, because if the trust were ever challenged, that would be deemed by the court as insufficient separation of interests and influence.
Benefits of Being the Trustee
The main benefit of being the trustee is that you would not have the disadvantages listed above. You would not have to share signatory control of the bank account, and you would not have to seek the trustee’s signature every time you engage in a significant transaction. If you are the primary trustee, you could function as the manager as well, whether you give yourself the title “managing trustee” or just “trustee”. This means you would have both legal and practical control of the trust. It means you wouldn’t have to “trust” anyone else with the assets in the trust, although you are still under fiduciary responsibility to responsibly administer the assets for the benefit of the beneficiaries, as contractually agreed in the trust corpus.
The disadvantage of this arrangement is that it requires more of a learning curve. To have this level of control, you really have to know what you are doing, in order to maintain the asset protection strength of the trust. It is best if you have an education in non-statutory trust law, common law, and asset protection. If you have the role of trustee and the control that it gives, and don’t have the knowledge of common law asset protection, then a mistake could cost you the assets in the trust.
Why then wouldn’t your friend whom you appoint as trustee in the first arrangement described above, where you are settlor, beneficiary, and manager, need to have a similar education? The reason is that in that arrangement, the control is separated between two people. In that arrangement, you have practical command and the trustee has legal control. Hence the risk is diversified. In this second arrangement, where you are trustee, you have both legal and practical control, in which case the risk is all concentrated in one person. The knowledge required by the person who has both legal and practical control is a lot greater. In the case of you being the manager and someone else being the trustee, the practical and legal types of control are separated, and no one person has much risk. In that case, the asset protection remains invincible without having any background in trusts or common law education.
It's really very simple . . . in these trusts, the creator is also known as the grantor or settlor. That has to be someone different from, and not related to, the trustee. So if you are trustee, someone unrelated to you has to be the settlor. Or, if you have a second unrelated trustee, then your settlor could be a spouse or family member. Since the settlor is normally the person who puts assets into the trust to hold on behalf of the beneficiary, then if you are the trustee, the question arises as to how someone else can be named as settlor if he or she doesn’t put any assets into the trust.
Here it will help to think for a moment about what is really meant by the ownership of assets. The question of "ownership" is something of which the unenlightened and the dark age government-oriented people are ignorant. Witness the famous statement of Chief Seattle:
"The President in Washington sends word that he wishes to buy our land. But how can you buy or sell the sky? the land? The idea is strange to us. If we do not own the freshness of the air and the sparkle of the water, how can you buy them? Every part of the earth is sacred to my people. Every shining pine needle, every sandy shore, every mist in the dark woods, every meadow, every humming insect. All are holy in the memory and experience of my people." - - (http://www.barefootsworld.net/seattle.html)
Therefore who really "owns" the assets you are putting into the trust? It is this higher sense of stewardship of resources that has come to justify the appointment of a nominee settlor (creator). Since the settlor and the trustee cannot be the same person, you select and appoint a settlor, and that person signs that certain assets are granted into the trust. You and the settlor understand very well that you are simply the divine steward of the assets which have been previously entrusted to you. He or she signs that these assets are now bequeathed to the trust, and actually, from that point onward, he or she really has no further role. From that point on, the trustee herself or himself can legitimately put additional assets into the trust, but a second trustee is needed, if the first trustee is also a beneficiary.
If you are putting assets into the trust and would thus normally be called the settlor (grantor), but if you also prefer to be the trustee, then you can appoint someone to play the "nominee" role of settlor. This means "in name only". This is done by big corporations in business every day all over the world. Nominee positions are often used to protect the privacy and the powers of the actual person in control. Since a trustee cannot also be a settlor officially, you can be trustee and must appoint someone else as nominee settlor.
Which role(s) you play depends upon what kind of friends and family relationships you have, what purposes you have in mind for the trust, what role(s) you would most enjoy playing, what seems easiest and best for you and your fellow chosen trust officers, and perhaps other factors.