Settlor meaning: definition and practical role

The settlor meaning is simple: the settlor (also called the grantor or, in German, the Errichter) is the person who sets up a trust by transferring assets to a trustee and recording the terms in a trust deed. Once the assets are transferred, the trustee holds and administers them as a separate pool of property for the beneficiaries or for a stated purpose. The settlor does not stay the owner in the ordinary sense.

What the settlor may still do depends on the trust deed and on the governing law. Some settlors keep a few defined powers; others step back entirely. The terms below, listed alphabetically, cover the settlor and the people and rules around the role. They give general information, not advice: how a term applies to you depends on your residence, your beneficiaries, your assets and the governing law, and needs an individual analysis.

An illustration (fictional): a family established in Lausanne creates a trust for the benefit of their children. The mother, as settlor, signs the trust deed and transfers the assets. The deed names the trustee, sets out who may benefit and records which decisions the settlor keeps. For the decisions that stay with the settlor, see the guide on settlor reserved powers and the trustee relationship.

A

AEOI / CRS

The automatic exchange of information (AEOI) is the international system under which financial institutions report certain account information to tax authorities, using the Common Reporting Standard (CRS). A trust can be treated as a reporting entity or as an account holder, and the settlor, trustee and beneficiaries may all appear in the reporting. How this applies depends on the structure and the countries involved.

AMLA (LBA, GwG)

The Anti-Money Laundering Act applies to Swiss financial intermediaries, including trustees. It requires the trustee to identify the settlor and the controlling persons, to understand the origin of the assets and to keep records. Expect questions about source of wealth when you set up or move a trust.

Appointor

An appointor is a person, sometimes the settlor, who holds the power to appoint or remove trustees. The power is set out in the trust deed. Where it exists, it is often the quickest route to replace a trustee, so check who holds it before you plan a change.

B

Beneficial owner

In the anti-money-laundering sense, the beneficial owner is the natural person who ultimately controls or benefits from assets. For a trust, a trustee may need to identify the settlor, the protector and the beneficiaries. The term is not the same as legal ownership, which sits with the trustee. See beneficial owner for the practical meaning.

Beneficiary

A beneficiary is a person, or a class of persons, who may receive benefits from the trust. In a discretionary trust the trustee decides whether and when to distribute; in a fixed interest trust the entitlement is set in the deed. The trustee owes duties to the beneficiaries, described in what a trustee owes the beneficiaries.

Breach of trust

A breach of trust is a failure by the trustee to act as the law or the trust deed requires, for example by acting outside the powers given or by ignoring the beneficiaries' interests. The remedies depend on the governing law and on any clause limiting the trustee's liability.

C

Co-trustee

A co-trustee is one of two or more trustees who act together. The deed usually says whether they must decide jointly or whether one may act alone. Co-trustees can add continuity and a second view, at the cost of slower decisions.

Corporate trustee

A corporate trustee is a company that acts as trustee on a professional basis. In Switzerland, a professional trustee is a regulated financial institution, which must hold FINMA authorisation and be linked to a supervisory organisation. The alternative is an individual trustee, usually a person with a personal link to the family.

D

Deed of retirement and appointment

This is the document by which a trustee retires and a new trustee is appointed, so that the trust property passes to the successor. It is normally signed by the outgoing trustee, the incoming trustee and whoever holds the power of appointment. See deed of retirement and appointment.

Discretionary trust

A discretionary trust gives the trustee the power to decide which beneficiaries receive what, and when, within the terms of the deed. Settlors often add a letter of wishes to guide that discretion. The trustee must exercise it in good faith and for the purposes of the trust.

E

Exculpation clause

An exculpation clause limits or excludes the trustee's liability in defined situations. Its effect depends on the governing law and on how the clause is drafted, and it does not cover every kind of fault. See exculpation clause.

F

FINMA

FINMA is the Swiss Financial Market Supervisory Authority. It grants the authorisation that a professional trustee in Switzerland needs, and it supervises trustees together with a supervisory organisation. It also publishes a list of authorised and supervised trustees.

FinIA (LEFin, FINIG)

The Financial Institutions Act treats trustees as financial institutions. It defines a trustee as someone who, on a professional basis, manages a separate pool of assets, or disposes of it, for a beneficiary or a stated purpose under a trust deed within the meaning of the Hague Trusts Convention (art. 17 para. 2 FinIA). It also requires the trustee to manage the assets, preserve their value and use them in line with their purpose (art. 19 para. 2 FinIA).

Fixed interest trust

In a fixed interest trust, the deed sets the beneficiaries' entitlements, so the trustee has little room to choose who benefits. The trustee's work is then mostly administration, accounting and reporting.

Funding

Funding is the transfer of assets into the trust by the settlor. Until assets are transferred, a trust may exist on paper without having any property. Funding is also the stage at which the trustee asks for documents on the assets and their origin.

H

Hague Trusts Convention

The Hague Convention on the Law Applicable to Trusts and on their Recognition sets common rules on how trusts are recognised across states that apply it. Switzerland, which has no trust law of its own, applies it so that a foreign-law trust can be recognised. The governing law of the trust is chosen in the deed.

I

Individual trustee

An individual trustee is a natural person who acts as trustee, for example a trusted adviser or family friend. The role can bring personal knowledge of the family but raises questions of continuity, qualification and conflicts of interest. See the situation where an individual trustee has died or retired.

Irrevocable trust

In an irrevocable trust, the settlor cannot simply take the assets back. The assets belong to the trust, and changes are possible only through powers written into the deed or through a court or the beneficiaries' agreement, depending on the law. Which powers remain with the settlor is the practical question.

L

Letter of wishes

A letter of wishes is a non-binding note from the settlor telling the trustee how the settlor would like discretion to be used. It is a guide, not an order, and it should be updated as the family changes. See letter of wishes.

P

Private trust company

A private trust company is a company set up to act as trustee for one family's trusts. It is a different structure from a professional trustee, and whether it needs its own authorisation depends on how it operates and on the law applicable to it.

Protector

A protector is a person given powers in the deed to oversee the trustee, for example to approve distributions or to remove and replace the trustee. The protector is not the trustee and normally owes duties of their own. See protector and the wider trustee, protector and beneficiary triangle.

R

Reserved powers

Reserved powers are powers that the settlor keeps in the trust deed, such as the power to revoke the trust, to direct investments or to change beneficiaries. The more the settlor keeps, the more a court or authority may question whether the trust is genuine. See reserved powers.

Revocable trust

In a revocable trust, the settlor keeps the power to end the trust and recover the assets. Control stays close to the settlor, which can affect how authorities treat the structure, including for tax and reporting. The analysis depends on the countries concerned.

S

Settlor

The settlor is the person who creates the trust, transfers assets to it and signs the trust deed. Where several people fund a trust, there can be more than one settlor. After the transfer, the legal title is held by the trustee, and the settlor's remaining influence is limited to what the deed provides. Typical wording in a trust deed reads: "The Settlor has transferred the Trust Fund to the Trustee, who shall hold it on the terms of this Deed."

Sham trust

A sham trust is a structure that exists on paper while the settlor in fact continues to treat the assets as personal property. Courts and authorities may disregard it. Heavy reserved powers, ignoring the trustee's role and informal use of trust assets are the usual warning signs.

Successor trustee

A successor trustee is the person or company named to take over if the trustee dies, retires or is removed. Naming one in the deed avoids a gap in administration. See successor trustee.

Supervisory organisation (SO-FIT)

A supervisory organisation is a body authorised and supervised by FINMA that checks, on an ongoing basis, whether trustees meet the conditions of their authorisation. SO-FIT is a non-profit association authorised by FINMA to act both as an anti-money-laundering self-regulatory organisation and as a prudential supervisory organisation for asset managers and trustees. Changes in a trustee's circumstances must be reported to it in advance.

T

Trust deed

The trust deed is the document that creates the trust. It names the settlor and the trustee, defines the trust property, sets out the beneficiaries or the purpose, and lists the trustee's powers and any powers kept by the settlor or given to a protector. It is the first document to read when you assess a trustee.

Trust property

Trust property, or the trust fund, is the separate pool of assets that the trustee holds. It is kept apart from the trustee's own assets and from the settlor's personal estate, which is why accounts and records matter.

Trustee

The trustee holds legal title to the trust property and administers it in line with the deed, the governing law and, in Switzerland, the supervisory rules. A professional trustee in Switzerland is a regulated financial institution. The trustee's duties towards beneficiaries are explained in what a trustee owes the beneficiaries.