There are three separate positions on the living trust team and typically, the individual creating the living trust will initially serve in all three positions. The three positions on the trust team are the grantor, the trustee and the beneficiary.
The grantor is the individual who creates the trust and sets forth the instructions in the trust and determines who is to ultimately receive the assets upon the grantor’s passing.
The trustee is the individual responsible for carrying out the terms contained in the trust. When a grantor creates a living trust, the grantor will typically name him or herself as the initial trustee. The grantor will also name a successor trustee to manage and distribute the assets upon the grantor’s disability or death. The successor trustee has a fiduciary responsibility to carry out the terms of the trust.
The last position on the trust team is that of the beneficiary. The beneficiary is the individual who benefits from the assets in the trust. The grantor also typically names him or herself as the initial beneficiary of the trust.
When an individual creates a living trust, the individual initially occupies all three positions; the individual creates the trust as the grantor, manages the trust assets as the trustee and is the initial beneficiary of the assets. Upon the grantor’s passing, the successor trustee assumes the responsibility for carrying out the terms of the trust and for transferring the assets of the trust to the ultimate beneficiaries pursuant to the terms set forth in the trust instrument.
The creation of a living trust and the transfer of assets into the trust do not result in a separate tax return being filed – all the income is still reported on the same IRS Form 1040. A living trust is revocable by the grantor and it can be changed or amended at any time, as long as the grantor has the requisite mental capacity required to amend the trust.