What is a trust? Why do I need one? What is the difference between a corporate and individual trustee and why might one be preferred over the other?
Understanding trusts and how to effectively structure them can be a challenging process. If you would like to establish a trust, we recommend having a thorough understanding of what a trust is, the difference between a corporate trustee and an individual trustee and your ongoing compliance obligations before getting started.
A trust is a legal relationship whereby an individual, individuals or corporate entity (known as a trustee or trustees) hold title to and manage property or assets (the trust property) for the benefit of one or more beneficiaries as governed by the terms of the Trust Deed.
The trustee of a trust is either an individual person or persons or a company that legally holds title to the trust’s assets for the benefit of the beneficiaries of the trust. The trustee is obliged to act in the best interests of the beneficiaries in accordance with the terms of the Trust Deed.
A corporate trustee is an Australian company. Typically, a corporate trustee is a shell company with only an ACN, no filing obligations and no assets. A corporate trustee must have a shareholder or shareholders and appoint directors to manage the trust and the distribution of assets to beneficiaries.
The main benefits of having a corporate trustee in place are asset protection and limited liability. These are explained as follows:
Conversely, the disadvantage of having a corporate trustee is the increased setup and management costs associated with incorporating a company and directors fees (if any).
An individual trustee is a natural person or persons.
The primary advantages of appointing an individual trustee include an uncomplicated and inexpensive setup process, as well as low ongoing management costs.
Conversely, the disadvantages associated with an individual trustee include limited protection for the trust assets in the event that the individual trustee is subject to legal action and the inability to distinguish between personal and trust assets.
Succession planning and determining who the legal owner of the assets is and transfer of the assets to a new trustee in the event of the death of the individual trustee can also become an issue.
Deciding whether to appoint a corporate or an individual trustee can be a challenging process and should be assessed on a case-by-case basis to ensure all relevant circumstances are carefully considered.
We recommend you seek legal advice to ensure that the right structure is implemented for your specific circumstances.
… and don’t stress. If you get it wrong, we can assist you to prepare a Deed of Retirement / Removal and Appointment to retire or remove the current trustee and replace them with a new trustee (as governed by the terms of your Trust Deed).
The information contained in this blog is general in nature and should not be considered to be legal, tax, accounting, consulting or any other professional advice. In all cases, you should consult with a professional advisor familiar with your factual situation for advice concerning specific matters before making any decisions. By reading this blog, you confirm your understanding of this disclaimer.