Trustor, Trustee: The important differences

QUESTION: When I recently signed my Trust, my attorney had me sign in two different places. Once as the Trustor of the Trust and once as the Trustee. Why was I required to do this?

ANSWER: Having to sign two times, first as Trustor and then as Trustee, probably seems like a silly thing to many people. However, the reason that the Trust needs to be signed this way is because the Trustor and the Trustee have separate duties as to the Trust.

Often times the Trustor and the Trustee are not the same person. Under such a scenario, separate signatures would obviously be required. The Trustor is the person who creates the Trust. In the case of a Revocable Trust, the Trustor can change the terms of the Trust and withdraw the money from the Trust.

The Trustee, however, is required to follow the terms of the Trust. The Trustee is required to do what the Trust document tells the Trustee to do. There is no requirement that you do have to sign two separate times in order for the Trust to be valid; the signature block could indicate that you are signing both as Trustor and as Trustee.

However, as a matter of practice, many attorneys do have separate signature blocks for the Trustor and the Trustee simply because of the fact that the Trustor and Trustee are not always the same person.

These situations where a person is acting in different capacities are prevalent throughout the law. For example, assume that you are acting as Personal Representative (also known as “Executor”) of a relative’s estate. Also assume that you believe this relative owed you money pursuant to a verbal agreement that you had, and that money was not paid off before your relative passed away. As Personal Representative of the estate, you are required to follow the terms of the deceased person’s Will and distribute the estate accordingly.

However, you may individually also have a claim as a creditor of the estate; a creditor who is attempting to collect on a promissory note that you believe is owed to you. This is an example of you wearing two different hats. One is as the Personal Representative and one is as a creditor. Such a scenario creates a conflict of interest.

If you are the sole beneficiary of the estate, and there is enough money to pay all the creditors, then there is no real issue, as you would get everything that is left anyway. However, if not, then you would probably need to have one represent you as a creditor, and a different attorney to represent you as the Personal Representative of the estate. These types of cases are often resolved by the filing of a petition in which you lay the facts out before the Judge and let the Judge decide what should happen. Another scenario where you may be acting individually in different roles is in the Corporation. Assume you are a majority shareholder of a Corporation. The shareholders vote to elect you as a member of the Board of the Corporation. The Board then appoints the Officers of the Corporation who control the day-to-day operation of the Corporation, such as hiring employees. It is not unheard of for someone to be, all at the same time, a shareholder, a Board member, an Officer, and an employee of a Corporation.

Even in situations like this, proper corporate procedure must be followed in order to protect the legitimacy of the Corporation. Failure to do so could result in the corporate veil being breached. This could happen if the Corporation is sued and the Court decides that the Corporation is really just the alter-ego of a shareholder or shareholders. In such a case the shareholders could be liable individually for the actions of the Corporation. So it is important to recognize that you may be acting in different capacities under different circumstances.

This article will appear monthly in this newspaper as a public service. It is not intended as legal advice, and will address only general propositions. If you have a question about a matter which affects you, you should contact an attorney. If you have a question to ask Heideman for this column, call his Green Valley office at 625-4404 or e-mail him at a heideman@ duffieldlaw.com.