Paralegal Advanced Competency Exam (PACE) Practice Exam

What does the term 'settlor' refer to in relation to trusts?

1. The person managing the trust

2. The individual setting up the trust

3. The beneficiary of the trust

4. The legal representative for the trust

The correct answer is: The individual setting up the trust

The term 'settlor' refers to the individual or party that establishes a trust. This person creates the trust document and transfers assets into the trust, thereby designating how those assets are to be managed and distributed. The settlor is essential to the formation of the trust, as their intentions guide the trust's terms and conditions. In a trust arrangement, the settlor typically outlines the purpose of the trust, identifies beneficiaries, and may designate a trustee to manage the assets according to the terms specified. This role is distinct from that of the trustee, who is responsible for administering the trust, and the beneficiaries, who receive benefits from the trust. Understanding this role is critical for comprehending the overall structure and function of trusts within estate planning and asset management.