Trusts are a type of legal structure that’s commonly used to protect and manage assets and/or businesses for the benefit of a third party. This type of structure comes with significant taxation and legal benefits, but they need to be set up properly to avoid complications.
You need several elements to create a trust, including the trustee, beneficiaries, a trust deed, an appointor, and the settlor.
The settlor plays a crucial role in establishing a trust, but understanding their responsibilities and involvement can be a challenge. In this article, we’ll discuss what a settlor is, their role in the creation of a trust, and whether the settlor can also be a trustee or beneficiary.
What is a Settlor of a Trust?
The settlor of a trust is the person or entity responsible for setting up the trust. The settlor handles the establishment process and hands over the settled property to the trustee.
A settlor can be any individual, multiple individuals or a company. This includes family, friends and professionals (such as accountants and lawyers). In Queensland, anyone can be the settlor of a trust as long as they are:
- Aged 18 years or older
- Of sound mind and capable of understanding their role
While these are the minimum requirements, establishing a trust is a serious and complex procedure that typically requires input from a trust lawyer. Given that the settlor will likely need to work with a trust lawyer, it’s usually a good idea to appoint a lawyer as the settlor.
Using a qualified trust lawyer as the settlor simplifies the process of establishing a trust. It also ensures any legal complications are dealt with properly, and that foreseeable problems are prevented.
What is the Role of the Settlor?
The primary role of the settlor is to establish the trust. The settlor will also:
- Name the trustee(s)
- Name the beneficiaries
- Name the appointor (where applicable)
- Transfer control of the trust’s assets to the trustee
This last point is important. A trust is only created when a trustee holds assets for the benefit of another party. In order for a settlor to establish the trust, they must transfer the settled sum to the control of the trustee. The trustee provides a receipt for this transaction, at which point the trust is created.
By providing the settled sum and executing the trust deed:
- The settlor has placed the trustee in control of the trust property
- The settlor has nominated the beneficiaries
- The trustee agrees to hold the property according to the terms of the trust deed
Once this is complete, the role of the settlor is complete.
Can the Settlor be the Trustee?
Yes. The settlor and the trustee are two separate roles in the creation and management of a trust, but they can be performed by the same person or entity.
After the settlor has created the trust, they can become trustee. This is a common arrangement where a tax lawyer has acted as the settlor.
In cases where the settlor becomes the trustee, it ensures the trustee has an intimate understanding of why the trust was created, as well as any legal complications that arose along the way. This can improve outcomes for the beneficiaries and provide peace of mind when creating a trust.
The settlor cannot become the sole trustee, and they cannot be a beneficiary of the trust. If that’s the case for you, you could nominate a trusted friend or family member to also serve as a trustee alongside your lawyer. Alternatively, you could nominate a second professional, such as your accountant.
Can the Settlor be a Beneficiary of the Trust?
No. The settlor cannot be the beneficiary of a trust they have established.
When creating a trust, the settlor is required to divest themselves of the assets that are being placed in the trust. If the settlor is also a beneficiary, then they will not have divested themselves of the assets, and therefore the trust cannot be created.
Establish and Manage Your Trust with the Team at FP Lawyers!
Establishing a trust is a flexible and secure way to manage your assets, businesses, and provide for your family. Setting up a trust is a serious process that requires an in-depth understanding of trust law to ensure all matters are handled appropriately.
While you are free to nominate a friend or family member to act as settlor, working with a trust lawyer is the best way to protect your interests. The team at FP Lawyers includes experienced commercial lawyers Brisbane wide that can support you in creating and managing trusts.
With extensive experience in trust, taxation and commercial law, we understand the legal requirements inside and out. We will assess your situation and help structure your trust to protect your assets, provide for your family, and take advantage of any tax benefits that are available.
Speak to our team if you are interested in establishing a trust. We work with clients from end to end, so we can ensure your trust is in the right hands.
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