People Power: The Settlor

Today Allawdocs is excited to commence our new series: People Power! The aim of this series is to acquaint you with some important characters you'll find involved with trusts. To get the ball rolling, we're talking settlors! (Not the ones that settled Australia!)

What is a settlor?

The settlor is absolutely vital to a trust - it is the creator of the trust.

In creating the trust, the settlor:

• sets the terms of the trust;
• appoints the trustee or co-trustees. The settlor should not be the trustee; and
• transfers the trust property to the trustee, usually by gifting the settled sum to the trustee(s).

Unless the trust deed provides otherwise, the settlor should not be involved with the trust and does not have any rights in carrying out the trust after its creation.

Who can and should be a settlor?

A settlor may be a person, multiple people together, or a company.

The capacity of a person to be a settlor (i.e. capacity to create a trust) is akin to the capacity to hold and dispose of interests in property. That is, to create a trust, a person acting as the settlor must be:

• over the age of 18;
• of sound mind; and
• not bankrupt.

Allawdocs recommends that the settlor is an independent, adult, solvent person of sound mind - for example, your accountant. Having someone independent from the trust (i.e. not a family member that will benefit from the trust) is ideal because it avoids negative tax consequences that can arise from having a settlor-beneficiary.

All up

The settlor is essential to a trust. Another essential person to a trust is the beneficiary.

Keep your eyes peeled - more on this next time!

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Allawdocs provides fast, quality online legal documents for accountants, financial planners, lawyers, and business owners around Australia, including company formations, trust deeds, and SMSF documents. With the legal support of GV Lawyers, clients can receive free legal advice relating to their Allawdocs document.

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Blog provided by GV Lawyers.