Trustees of Discretionary / Family Trusts - individual v corporate
Individual or corporate Trustee? This is a question that we are regularly asked when it comes to setting up a trust. Here are some tips to help you decide:
A Corporate trustee is the way to go when any of the following apply:
1. The trust will be engaging in any “at risk” activity - that is activity that could result in liability. In the current climate “risk activity” is really anything other than holding shares, units, bonds or deposits. Reason: The trustee is responsible for liabilities it/he/she incurs for the trust (subject to a usual right of indemnity from the trust).
2. The trust is going to hold real estate. Increasingly this is a “risky” venture anyway. Some States now require more than one individual trustee for registration purposes, or of course, a company.
3. The individual who would act as the trustee is a “high risk” person. By high risk person I mean someone who faces large personal liability, by reason of their occupation for example. While the trust assets are not owned by that person personally, you want to minimise any risk of them being dragged in by a vexatious claimant.
4. If you think it is almost certain that you will change to a corporate trustee in the near future. Reason: Cost. When you change trustee you will need to have a Deed or Retirement and Appointment of New Trustee prepared, stamped and possibly recorded on various registers. Avoid the extra cost, “bite the bullet” now and form the company.
Extra tip: make sure that the shareholder of the trustee company is not a “high risk” person.
Trust resources from www.onlinelegal.com.au:
Company resources from www.onlinelegal.com.au:
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on August 2nd, 2006 at 2:31 am
My wife (domestic duties) and I (Consultant) are looking at purchasing a shareholding and Unit holding in a business, vide a Company, which is registered under the Corp Act and is Trustee for the Unit Trust. The business’ product is in the domestic/global cosmetic and health&wellbeing growth areas.
While taking advantage of this opportunity, we would like to limit any liability and protect my personal and family financial situations, should anything go wrong with the business. In addition, in the future, I would like to be able to involve my children and their future offspring in what I expect will be a profitable enterprise.
How can I best can I achieve this?
Response:
Hi Neil
This is a multilayered question that I recommend you take specific legal and accounting advice on. Matters to consider will include:
- Is your investment going to be funded by borrowing? If so, what will this borrowing be secured against? How long will it take for the investment to be cash positive? Longer periods of negative geared investment usually point to using a Unit Trust or Hybrid Trust.
- If the investment is going to be held long term for further generations consider:
> It being held in your wife’s name and left on testamentary discretionary trust for the next generation
> It being held in a Unit Trust or Hybrid trust (rather than a discretionary trust) to allow for succession of control to the next generation in proportionate shares.
- What is the risk attaching to holding shares or units? This is usually very low. The real risk is usually in relation to being an officeholder.
- Consider carefully the control of any trust. See my article:Discretionary / Family Trust Assets exposed
I trust that this is enough of a primer for you.
Regards
Onlinelegal
on August 27th, 2006 at 1:07 am
My daughter and her boyfriend are buying a property using a trust. The trustee is the boyfriend and they are joint beneficiaries. Is it possible for them to be joint trustees?
Response:
1. Yes joint trustees of a trust are not only possible but a good idea and often required by land titles offices.
2. You should also consider having them be joint “appointors” of the trust. The appointor (or principal as they are sometimes called) is the person(s) who usually ultimately controls the trust by having power to hire and fire the trustee.
3. Careful consideration needs to be given to what is to occur on the death or incapacity of one or both of them. A Will and Enduring Power of Attorney for each of them is a good starting point but not usually enough.
Our Succession of Control of Your Discretionary Trust LawPack is a great resource on these questions.
Regards
Onlinelegal
on September 7th, 2006 at 1:15 am
Dear sir, My wife & I have tried since 1998 to secure a home loan to no avail,I have found out that a Financial Organisation,has given us a Negative credit rating until 2010,When I contacted them for an explanation they profusely appoligised.Where do we stand as this action has ruined our lives
Much obliged Robert
Response:
I recommend that you engage a local solicitor with banking and finance litigation experience for specific advice and particularly suggestions as to strategy. It may well be that part of the solution will be a settlement with the offending Financial Organisation which includes providing a highly discounted loan facility.
Regards
Onlinelegal
on September 14th, 2006 at 2:08 pm
Dear Andrew,
re: Ill health of the appointor for a Family Discretionary Trust.
Andrew, I see you have a kit that deals with the death of an appointor (Succession Of The Control Of Your Discretionary / Family Trust LawPack)
What happens when the appointor is ill and can not function?
Do your kits cover “what to do when the appointor becomes ill?”
i.e.: Enduring Guardianship Appointment.
regards
Marc
Response:
Our Succession of Control of Your Discretionary / Family Trust LawPack does address the issue of Appointor succession on death or incapacity. Whether it will be sufficient or whether you will need to take further legal advice from your usual lawyer is something you will need to assess after reading the contents of the LawPack and your Trust Deed.
Enduring Guardianship Appointment is a different matter that you will need to take specific legal advice on if our Enduring Power of Attorney LawPacks do not address your situation.
Regards
Onlinelegal
on January 22nd, 2007 at 2:55 am
Dear Andrew,
My mother and I purchased a business under a family trust. Unfortunately it appears we did not receive the correct accounting / legal advice regarding protection of our assets.
The business has since been sold, however there was a short fall to one creditor. Even though a verbal agreement was made to discharge the debt, 12 months later they are now claiming money via debt claim. Is there any legal way to liquidate the family trust to stop any future personal attack on our assets?
Regards Cherie
Response:
A trust can certainly be wound up, but the trustee of the trust continues to have liability as well. If this was you and your mother personally this is a problem. (This is good reason for having a company as trustee of a trust). If a company was the trustee you can look at winding it up as well. I suggest that you take some good accounting and legal advice before proceeding with any of these steps.
Regards
Onlinelegal
on May 11th, 2007 at 8:19 am
Hi - if you have a company set up to be a trustee of a family trust, is the company registered in it’s own right, i.e with a separate ABN to the trust, and given that the company carries on no business other that as trustee of the trust, does it need to have a bank account for the company and a separate one for the company as trustee of the trust?
Response:
The Company is an entity in its own right. It has an ACN.
If the company does nothing else than act as trustee for the trust it does not need an ABN. Only the trust needs the ABN.
The company in this circumstance does not need its own bank account.
Regards
Onlinelegal
on January 23rd, 2008 at 7:13 am
Hi Andrew,
We’ve set up a company as a trustee for our family trust. The company has an ACN. The purpose of the structure is for asset protection as we are going to start running a medical practice. Now, when we apply for workcover, should i be using the company name, or should i be using the trust name, or should i be using the company name as trustee for the trust? When they ask for acn or abn , should i give them the acn for the company or abn for the trust or both?? please kindly reply
John