The Settlor is the individual who “settles” a discretionary trust by transferring the settled sum to the Trustee (or Trustees).
The Settlor must also actually transfer the settled sum. If they fail to do so, the Trust will not come into existence. For a trust to be established, there must be trust property. In most situations, this trust property originates from the settled sum.
It’s considered best practice to appoint a close, yet unrelated, family friend as the Settlor. Our Legal team do not allow relatives of the beneficiaries or trustees to act as Settlors. The Settlor should be someone who will never benefit from the Trust. The trust deed specifically prohibits the Settlor from benefiting. This stipulation mainly prevents adverse tax consequences, as indicated in S.102 of the ITAA 1936. It also eliminates the risk of the Trustee inadvertently violating the trust deed by distributing assets to the Settlor.
There have been instances where the legitimacy of an entire trust was challenged because it was discovered that the Settlor (e.g., an accountant) charged a fee for the settled sum. This meant the sum was never genuinely gifted to the Trust, resulting in the absence of trust property, rendering the Trust nonexistent.
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