- The settlor creates the trust and then has no ongoing role
- The settlor should not be a beneficiary of the trust they create
- Distributions outside the family group attract 47% family trust distribution tax
- NSW surcharge land tax is 5% where a deed allows a foreign beneficiary
The settlor of a trust Australia’s tax law recognises is the person who brings the trust into existence. They give the trustee a nominal sum together with the signed deed, and from that point the trustee must deal with the trust property in line with the settlor’s intentions as set out in that deed. Once the trust exists, the settlor’s job is finished and they have no ongoing role.
The settlor should be someone independent of the beneficiaries, and should not be a beneficiary themselves. That is a five-minute decision at setup that shapes the trust’s tax position for as long as it runs. If you are still at the planning stage, you can set up a discretionary trust with Sleek and have the structure and the ongoing filings handled together.
What is a settlor of a trust?
The ATO puts the underlying relationship plainly: a trust is “an obligation imposed on a person or other entity to hold property for the benefit of beneficiaries,” and the trustee “must deal with the trust property in line with the intentions of the settlor as set out in the trust deed.”
So the settlor is the origin of that obligation. They provide the initial property, sign the deed that sets the terms, and hand both to the trustee. Everything the trustee can and cannot do afterwards traces back to the document the settlor executed.
If you are asking what is a settlor in a trust because you are reading a deed right now, the practical version is shorter: look for the clause naming the person who settled the trust, usually on the first page or in the parties block.
What does the settlor actually do once the trust exists?
Nothing. The settlor’s role is exhausted at the moment of settlement, and a well-drafted deed gives them no power to direct the trustee, no entitlement to income or capital, and no say in who receives distributions.
That is deliberate, and it means the answer to what is a settlor of a trust is a question about one moment rather than an ongoing relationship. The independence is the point, and the sections below explain what happens to the trust’s tax position when it is missing.
It also means the settlor is not the person to call when something goes wrong years later. Control sits with the trustee and, where the deed provides for one, the appointor.
Who should be the settlor of your family trust?
Someone with no interest in the trust. In practice that is the family’s accountant, their lawyer, or an unrelated adult who is willing to sign, hand over the settled sum and then step away permanently.
The reason is independence from the beneficiary class, not formality. Choosing a parent, a spouse or an adult child because they were in the room is the single most common way an otherwise sound structure acquires a problem it cannot shed.
A short test before you appoint anyone:
- Is this person, or could this person ever be, a beneficiary under the deed’s beneficiary class
- Are they a spouse, child, parent or sibling of someone who is
- Will they be contactable in ten years if a question arises about the deed
- Do they understand that they receive nothing from the trust, ever
Why can’t the settlor be a beneficiary?
Because a settlor who keeps a benefit in the trust they created, or a power to unwind it, can change how the trust’s income is taxed. Tax law contains a specific rule for revocable trusts, section 102 of the Income Tax Assessment Act 1936, and it is the reason deeds are drafted to keep the settlor at arm’s length.
This article does not summarise how that provision applies, because how it bites depends on the wording of the particular deed. That is a question for a tax lawyer looking at your document, not a rule of thumb.
The practical instruction is unambiguous even without the detail: the settlor is not a beneficiary, is not related to the beneficiaries, and retains no power to revoke or vary the trust.
What is the settled sum, and does the amount matter?
The settled sum is the initial property the settlor gives the trustee to bring the trust into existence. It is nominal by design, it is paid once, and it is never returned to the settlor.
The amount itself is a matter of drafting convention rather than a figure set by tax law, and this article does not state one for that reason. What matters far more is that the sum was actually paid and that the payment can be evidenced if anyone asks years later.
If you have not settled the trust yet, the mechanics sit inside the wider setup sequence, which our guide to how to set up a family trust in Australia covers end to end.
Settlor, trustee, appointor, test individual: who does what?
Four labels get used interchangeably in conversation and mean entirely different things on paper. Most people who ask what is a settlor in a trust are really asking how the settlor differs from the other three.
| Role | What they do | When they act | Can they be a beneficiary | Key risk if chosen badly |
|---|---|---|---|---|
| Settlor | Creates the trust by giving the trustee the settled sum and the deed | Once, at setup | No | A settlor connected to the beneficiaries can affect how trust income is taxed |
| Trustee | Holds and manages trust property, makes distributions under the deed | Continuously | Yes | Trustees are personally liable for the debts of the trusts they administer |
| Appointor | Can remove and replace the trustee | Rarely, but decisively | Usually yes | Real control sits here, so an unintended appointor controls the trust |
| Beneficiary | Can receive income or capital at the trustee’s discretion | When the trustee resolves to distribute | By definition | An over-broad class can trigger state foreign surcharges |
The test individual is a fifth concept and does not appear in the deed at all. It is a tax-election term, covered below, and it is not the settlor.
On trustee liability, the choice between a company and an individual is a separate decision with its own trade-offs, set out in our corporate vs individual trustee guide.
Does it make sense to go under a trust, set up a new Pty Ltd, or have a holding company structure?
It is the question AU business owners ask most often on structuring calls, and it is genuinely upstream of this article. The short frame: a trust is chosen for distribution flexibility and asset protection, a Pty Ltd for trading and retained profits, and a holding structure for separating risk from value.
This page assumes the trust decision is already made or close to it. If it is not, the comparison work sits in unit trust vs discretionary trust and the case for the structure sits in family trust tax benefits.
What the settlor question does not do is drive that choice. It is a setup detail inside the trust path, not an argument for or against taking it.
How do family trust elections create a 47% tax risk?
A family trust election is voluntary, and making one is what turns a trust into a family trust for tax purposes. The ATO is explicit that “a trust is not a family trust for tax purposes simply because the words ‘family trust’ are in the trust’s name.”
The election names one specified individual, who must be alive between the election commencement time and the making of the election. Everything then flows from that person: the family group is built around their relatives, and it covers parents, siblings, children and their descendants, spouses, certain former spouses and stepchildren, the family trust itself, other family trusts with the same specified individual, and entities that have made interposed entity elections.
Distribute outside that group and family trust distribution tax applies at the top marginal rate plus Medicare levy, currently 47%. It is payable by the trustee, and it generally becomes due 21 days after the distribution occurs, whether or not anyone noticed at the time.
Here is where the settlor question connects. The specified individual is a tax-election concept chosen for the family group it creates; the settlor is a deed role chosen for independence. Treating one as the other is a genuinely expensive mistake, and the annual mechanics of getting distributions right are covered in trust distribution resolutions.
When does your deed’s wording trigger a state foreign surcharge?
When the beneficiary class is drawn widely enough to include a foreign person, or could be amended to include one. This catches deeds whose owners have no foreign connection at all and no intention of distributing offshore.
Taking NSW as the worked example, a discretionary trust avoids being treated as a foreign trustee only if both of these hold:
- No potential beneficiary of the trust is a foreign person
- The terms of the trust are not capable of amendment in a manner that would result in a foreign person becoming a potential beneficiary
Revenue NSW defines a potential beneficiary broadly: a person qualifies if “the exercise or failure to exercise a discretion under the terms of the trust can result in any property of the trust being distributed to or applied for the benefit of the person.” Fail either limb and surcharge land tax applies at 5% of land value for the 2025 land tax year onwards, with surcharge purchaser duty payable on top when the trust acquires residential property.
Other states run comparable surcharges, but they are drafted differently and the exclusion wording that satisfies NSW does not automatically satisfy them. Check the state where the property sits, not the state where you live.
How do you check who is the settlor of a trust deed you already have?
Working out who is the settlor of a trust you already hold takes about five minutes with the document. Work through it in this order:
- Find the deed itself, usually with your accountant, your lawyer or in the trust’s establishment pack
- Find the settlor clause, normally in the parties block on the first page
- Check whether that person appears anywhere in the beneficiary class, including as a relative of a named beneficiary
- Check whether they hold the appointor role or any power to vary the deed
- Read the beneficiary class definition and the amendment clause together, looking for wording that could bring a foreign person in
If the settlor is clean on all five, the appointment is doing its job. If they appear in the beneficiary class or hold a power to vary, that is worth raising with an adviser rather than filing away.
What can be fixed later, and what can’t?
Some of it is fixable and some of it is not, and the honest answer is that the line runs through legal territory rather than accounting territory.
Amending a deed is not administrative housekeeping. Variations can carry duty consequences and, if they go far enough, can amount to a resettlement, which is treated as the creation of a new trust with its own tax outcomes. That is a lawyer’s assessment of your specific document, and an accountant should not be making the call alone.
What can usually be improved is everything downstream: how distributions are resolved each year, whether an election is appropriate, and whether the beneficiary class needs narrowing before a property purchase. What cannot be quietly undone is who signed as settlor at the start.
How Sleek helps with family trust structures
Most trust problems Sleek sees are not exotic. They are deeds set up cheaply years ago, never read since, and now carrying a consequence nobody priced at the time.
Sleek sets up discretionary trusts with the structure and the ongoing tax work handled together: the deed, the registrations, the annual distribution resolutions and the trust tax return in one place. Where the question is genuinely legal, Sleek’s tax accountants will say so and point you to it rather than improvising. More structuring material sits in Sleek’s Australian knowledge base.
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FAQs on settlor of a trust australia
Can I be the settlor of my own family trust?
No, you should not be. The settlor must be independent of the beneficiaries, and settling a trust you or your family will benefit from defeats the separation the structure depends on. Appoint your accountant, your lawyer or an unrelated adult instead, and keep yourself in the beneficiary class where you belong.
Can a company be the settlor of a trust?
In practice the settlor is almost always an individual. Independence is easier to demonstrate with a named person, and a person is easier to identify years later than a company that may since have been deregistered. If you have a specific reason to want a corporate settlor, treat it as a drafting question for a lawyer rather than a default.
Can the settlor also be the trustee?
No. The trustee holds and controls the trust property, so combining that with the settlor role collapses exactly the distance the deed is built to create. These are separate appointments held by separate people, and any deed that blurs them is worth a professional review.
What happens if the settlor dies?
Nothing changes for the trust. The settlor’s role ended at settlement, so their death has no effect on the trustee’s powers, the beneficiary class or the trust’s operation. This is one reason the appointment is worth getting right at the outset: the trust outlives the person who created it and there is no mechanism to consult them later.
Does it matter if the settlor is not an Australian resident?
It matters less than people expect, because the state foreign surcharge tests look at potential beneficiaries rather than at the settlor. That said, a non-resident settlor adds practical friction around execution, evidence of the settled sum and locating the person later. Raise it with your adviser before the deed is signed rather than after.
