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Trustor

DEFINITION

A trustor is an organization or individual that creates a trust through which they gift assets such as stocks or property as well as funds to specific beneficiaries. The assets in the trust are managed by the trustees for the good of the beneficiaries.

EXPLANATION

In the U.S, a trustor is also known as a grantor and his main role is to transfer or allocate assets to others known as beneficiaries. The grantor gifts the assets to specific beneficiaries through a trust by transferring their fiduciary duty to another party (the trustees) who manage the assets on behalf of the beneficiaries.

In some cases, the trustor may also be one of the trustees as is usually the case when parents create trusts for their children. In such cases, the parent may choose to be one of the trustees, or the sole trustee to ensure that their children do not misuse the assets held in the trust.

In other cases, the trustor may also be one of the beneficiaries as is commonly the case in family trusts where the grantor might be the head of the family who is also listed as one of the beneficiaries to the trust.

The Trustees’ Fiduciary Duty

In the United States, fiduciary duty is a legal term that governs the relationship between two parties and compels one party to act exclusively in the best interest of the other. The creation of a trust by the grantor automatically imposes a fiduciary duty on the trustee (fiduciary), who has to manage the assets in the trust in the best interests of the beneficiary (principal).

Despite the fact that the trustee’s fiduciary duty gives him the legal right to ownership of the assets in the trust, he must always make decisions that are ultimately for the good of the beneficiary who holds an equitable title to the assets (property). If a trustee violates their fiduciary duty, they are legally obligated to account for their ill-gotten profits, and the beneficiaries have a right to claim damages regardless of whether they suffered any harm.

Scenarios Where Beneficiaries Sue the Trustees

Lawsuits where the named beneficiaries sue the trustees for violating their fiduciary duty are very common in the United States and across the globe. These types of lawsuits usually arise due to multiple reasons, but the main cause is that the beneficiaries believe that the trustees acted in a manner that did not serve their best interests.

For example, many lawsuits have arisen after the grantor dies leaving behind a trust for his inheritors that is managed by trustees that are family members. Is such a scenario, the principals who are also family members may believe that the trustees managed the assets in the trust for their own benefit instead of for the benefit of the beneficiaries. Such lawsuits may drag on because of the emotions and history between family members. Other types of lawsuits may be brought against trustees who are professional money managers; in many of these cases, the beneficiaries usually have valid reasons and enough evidence to believe that the trustees acted in bad faith.

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