A settlor is a person (or legal entity) who transfers the ownership of assets from them to a second party known as a trustee in exchange for certain benefits laid out in a document known as a declaration of trust or trust deed. The terms trustmaker, grantor and trustor are synonymous with the term settlor.
There are many reasons why a person or legal entity may want to transfer their wealth to a trustee. Trusts are widely used in estate planning by individuals who want to leave assets to a beneficiary after their death but want to attach ongoing conditions to the receipt of assets.
The declaration of trust may also instruct the trustee as to alternative beneficiaries to whom money should be transferred should the primary beneficiary no longer meet eligibility requirements.
Entrusting assets to a trustee allows the settlor to exercise much greater control of their assets in absentia than they could using other estate-planning tools.
A vintage car enthusiast wants to leave a legacy to an automobile association in the form of a regular annuity. However, they only want the association to receive this annuity if they campaign for the rights of vintage car drivers. If the vintage car enthusiast were to leave their assets to the association by creating a will, the association may be required to meet certain requirements in order to obtain the assets, but there would be no way to ensure that the association would continue to use the assets in the way that the person donating the money intended.
By placing the money in a trust, the vintage car enthusiast can insure that the association will only continue to receive the benefit as long as it meets their requirements. In this case, the settlor could specify an alternative beneficiary such as a museum or a private individual as an alternative recipient should the automobile association become ineligible to receive the benefit in the future.
Trusts are widely used in countries which use Common Law legal systems.