If you’re setting up a unit trust for your business (or you’re buying into one), it’s normal to hit a point where the paperwork starts using terms that sound a bit… old-fashioned. One of the most common is “settlor”.
So, does a unit trust have a settlor? Often, yes - many Australian unit trust deeds will name a settlor and record a small “settled sum” as part of the establishment process. But it’s also worth knowing that the real legal question is whether the trust has been properly created under the deed and the surrounding steps (not just whether someone is labelled “settlor”).
This comes up a lot for Australian businesses using unit trusts to hold assets, run an investment structure, or operate alongside a company trustee. The details matter, because a trust isn’t a “thing” in the same way a company is - it’s a relationship that’s created by a legal document (the trust deed) and a process (the settlement/establishment of the trust).
Below, we’ll break down what a settlor is in plain English, whether a unit trust typically has one, what they should (and shouldn’t) do, and what to check before you sign anything.
What Is A Settlor In An Australian Trust?
A settlor is the person (or entity) who starts the trust.
In practical terms, the settlor usually:
- takes the initial step to “settle” the trust (often by signing the trust deed or participating in the establishment process); and
- contributes an initial amount of property to the trust (often a nominal amount, like $10).
That initial contribution is sometimes called the settlement sum (or settled sum). Historically, this was important because it showed that the trust had actually been created.
Once the trust exists, the settlor’s role is usually finished. In most modern Australian commercial trust setups, the settlor is not involved in running the trust day-to-day.
If you want the deeper legal explanation of how a settlor fits into the overall trust relationship, the concept is also discussed in our article on settlor.
Settlor vs Trustee vs Unitholder (What’s The Difference?)
This is where many business owners get understandably confused. These roles are not interchangeable.
- Settlor: helps set the trust up by providing the initial settled sum (usually then steps away).
- Trustee: the legal “owner” of trust property and the party who operates the trust in accordance with the trust deed.
- Unitholders: the investors/owners of units in the trust who have rights to distributions (depending on the deed and unit structure).
In a unit trust, unitholders are a bit like shareholders in a company - but the rules come from the trust deed, not the Corporations Act.
Does A Unit Trust Have A Settlor In Australia?
In many Australian setups, yes - unit trust establishment documents commonly include a settlor (and a settled sum).
That said, it’s helpful to separate two ideas:
- Legal concept: a trust is generally created when property is held by a trustee on trust for others, with an intention to create that trust (and on the terms set out in the trust deed).
- Practical setup: many trust deeds and establishment processes will identify a settlor and specify a settled sum to help document how the trust was established.
So when someone searches “does a unit trust have a settlor”, what they’re usually trying to confirm is: “Do we need someone independent to help ‘start’ this trust, and do we have to document it?”
For many small businesses, the practical answer is: you should expect the unit trust deed to name a settlor and record the settlement sum (or otherwise include clear wording about how the trust is established).
Why Is The Settlor Often “Someone Else”?
In many business unit trust setups, the settlor is:
- a lawyer or accountant (or their firm);
- a friend or relative who is not otherwise connected to the trust; or
- another third party with no ongoing role.
This is often done because, as a general rule, businesses try to keep the settlor separate from the people who benefit from the trust (unitholders) and the people who control it (trustee/directors).
There can be legal and practical reasons why that “independence” is helpful - and, separately, there may be tax considerations depending on your wider structure. (Sprintlaw doesn’t provide tax advice, so you should speak with your accountant or a tax adviser about your specific situation.)
Why The Settlor Matters For Small Businesses (Even If They Only Pay $10)
It can feel strange to worry about the person who contributed a nominal amount and then disappears. But in practice, the settlor can matter because trust structures often rely on clear separation of roles and clear documentation of the setup process.
Here are the key reasons Australian businesses should pay attention to the unit trust settlor role.
1. Avoiding Conflicts And “Too Much Control” Issues
Trust law is built around the idea that the trustee holds property for others and must follow the trust deed. If the settlor is also heavily involved (especially as a beneficiary/unitholder or controller), it can muddy the waters about:
- who really controls the trust;
- whether the trust is being administered in line with the deed; and
- whether dealings are genuinely arm’s length.
For many businesses, the goal of a unit trust is clarity: units represent ownership interests, and the trustee administers the trust according to the deed. Clean separation supports that.
2. Tax And Duty Sensitivities (Get Advice Early)
Trusts can have real tax and state-based duty implications, especially where:
- units change hands;
- the trust holds land (including commercial property);
- the deed gets amended; or
- there’s a restructure (for example, moving from discretionary trust to unit trust, or changing classes of units).
Because tax outcomes depend heavily on the specific deed, parties, and transactions, Sprintlaw can help with the legal documents and structure - but we don’t provide tax advice. If you’re setting up a unit trust as part of a broader structure (like a corporate group), it’s worth coordinating your legal documents with advice from your accountant or tax adviser from day one.
3. Bank Finance And “Bankability” Of The Structure
If your unit trust will borrow money (common for property, equipment, or working capital), lenders often want the structure to be clean and documented properly.
That may include the trustee entering into documents like a General Security Agreement and, in some cases, steps to register a security interest on the Personal Property Securities Register (PPSR) where relevant.
Even if a lender doesn’t focus on the settlor directly, a properly documented setup (including the deed execution and establishment steps) can make the overall transaction smoother.
Who Should Be The Settlor Of A Unit Trust?
There isn’t one single “right” answer, but there are common best practices.
In many Australian commercial unit trust setups, the settlor is typically:
- independent of the trustee and unitholders;
- not a beneficiary/unitholder (and not intended to become one later); and
- not someone who will control decisions under the trust deed.
Often, the settlor is an individual or entity who is comfortable being named in the deed but has no other involvement.
Should You Be Your Own Settlor?
Business owners often ask this because it seems simpler. But it’s not usually recommended to have a key unitholder or controller also act as settlor.
Even if it may be possible in some situations, it can create unnecessary risk and confusion later - especially if a dispute arises between unitholders, or if you’re trying to show that dealings are at arm’s length.
If you’re unsure, it’s worth getting legal advice on the trust deed structure and who should fill each role before you lock anything in.
Can A Company Be The Settlor?
Sometimes, yes - but you still need to think about independence and whether the company is connected to the people who will benefit from or control the trust.
Many businesses use a company as the trustee (rather than an individual) to manage risk. If you’re considering a corporate trustee, getting the company established properly and keeping its governance documents in order is important, including your Company set up and (where relevant) a tailored Company Constitution.
How To Set Up A Unit Trust Properly (Settlor, Trustee, Units And Paperwork)
Setting up a unit trust isn’t just about picking a name and issuing units. The legal foundation comes from the trust deed and related documents.
Below is a practical checklist of what we usually recommend small businesses think through.
1. Confirm The Purpose Of The Unit Trust
Start with the “why”, because it will shape the deed and your setup:
- Is the unit trust holding an investment asset (like property or shares)?
- Is it running an operating business?
- Will there be multiple investors?
- Do you want different unit classes with different rights?
When your purpose is clear, it’s easier to draft a deed that fits (instead of forcing your business into a template that doesn’t match).
2. Choose The Trustee (And Decide If It Should Be A Company)
The trustee is the party that signs contracts, opens bank accounts, and holds trust property. Many businesses choose a company as trustee for risk management and continuity.
If you do this, you’ll also want to think about who the directors are, how decisions get made, and what happens if someone exits.
3. Appoint A Settlor And Record The Settlement Sum
This is the part that answers the core question about whether a unit trust has a settlor.
In a typical unit trust deed, you’ll see:
- the settlor’s name and details;
- the settlement sum amount; and
- an acknowledgement that the trustee holds that sum on the terms of the trust deed.
Even if the sum is nominal, documenting the establishment steps clearly can help prevent confusion later about how (and when) the trust was set up.
4. Issue Units And Document Unitholder Rights
Once the trust exists, the trustee can issue units to unitholders in exchange for subscription money (or other arrangements allowed by the deed).
If there will be more than one unitholder (or you plan to bring in investors later), you should strongly consider a separate agreement that sets out practical rules around:
- who can buy or sell units (and when);
- how units are valued;
- how disputes are handled; and
- decision-making and veto rights.
This is where an Unitholders Agreement can be very helpful, because it deals with the commercial reality of running the structure (not just what the deed says at a high level).
5. Make Sure The Trust Deed Matches What You’re Actually Doing
In practice, problems arise when:
- your accountant has one understanding of the trust’s purpose;
- your bank’s loan documents assume another;
- your business partners assume something else again; and
- the deed doesn’t clearly support the intended arrangements.
For example, if you plan to have different distribution entitlements, or bring in new investors later, the deed needs to be written with that in mind.
Common Mistakes Businesses Make With Unit Trust Settlors
Most settlor issues don’t show up on day one. They show up later - when you’re raising finance, selling units, or dealing with a dispute.
Here are common pitfalls we see small businesses run into.
Naming A Settlor Who Is Also A Beneficiary/Unitholder
This can create unnecessary legal uncertainty and may raise questions about independence. It can also complicate later record-keeping if the person exits the business and you’re trying to clean up historic documents.
Not Actually Paying The Settlement Sum (Or Not Keeping Evidence)
Even if it’s $10, it’s worth treating it like real setup paperwork:
- ensure the deed is executed correctly; and
- keep a record of the payment (even a simple receipt or bank record, where possible).
Good record-keeping is boring - until you need it.
Using A Generic Trust Deed That Doesn’t Fit The Deal
A unit trust can be flexible, but only if the deed is drafted to allow what you want to do.
If you’re bringing in co-investors, profit-sharing differently, or planning for future unit sales, it’s worth getting the deed (and any unitholder arrangements) tailored so you’re not forced into expensive fixes later.
Forgetting The Trust’s Other Legal Touchpoints
The settlor is just one piece. Depending on what your unit trust does, you may also need to think about:
- customer-facing terms if the trust operates a business;
- employment documentation if the trustee employs staff; and
- privacy compliance if you’re collecting personal information online.
For many online and service businesses, a Privacy Policy becomes part of the trust’s overall compliance picture (even if it’s not “a trust law document”).
Key Takeaways
- Does a unit trust have a settlor? In many Australian unit trust setups, yes - a settlor is often named in the trust deed and contributes a nominal settlement sum as part of establishing the trust.
- The settlor’s role is typically a “setup role” only, and they generally shouldn’t also be a unitholder/beneficiary or controller of the trust.
- A clean separation between settlor, trustee and unitholders can reduce risk and avoid confusion later, especially when investors, lenders or disputes come into the picture.
- Unit trust structures work best when the trust deed and related documents match what your business is actually doing (including how units are issued, transferred and valued).
- Consider documenting unitholder arrangements clearly (especially with multiple investors) so decision-making and exits don’t derail the business later.
If you’d like a consultation on setting up a unit trust (including choosing the right settlor and structuring the trustee and unitholders properly), you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
