Deciding on a trustee is not as simple as flipping of a coin or randomly checking one box over another when ordering trust deeds online (without legal advice).
It is a decision that needs to be carefully considered.
DEFINE TRUST: A trust is a legal structure that holds assets for the benefit of the beneficiaries in accordance with the rules of the trust (the “Trust Deed”).
DEFINE THE ROLE OF THE TRUSTEE: The trustee is obliged to act in the best interests of the beneficiaries as set out in the Trust Deed.
WHO CAN BE THE TRUSTEE: The trustee of a trust can be either a corporate trustee or an individual person/s.
COSTS: Some people opt for individual trustees due to the lower up front costs and management costs over time. Others opt for Corporate trustees which incurs more up front and ongoing costs.
So.. who should you appoint?
The primary benefit of a Corporate trustee is asset protection and tax savings.
If the purpose of the trust is for investment, business or other types of transactions it is more exposed to risk so a Corporate trustee would be recommended.
This table outlines some key differences between individual trustees and Corporate trustees:
|Debt Liability/Shortfall||Individuals will become liable for liabilities or shortfalls in assets in the trust (e.g., if the trust trades at a loss)||As a separate legal entity there is limited liability for directors in the event of a shortfall in assets. |
If this arises, then the Corporate can be put into liquidation and individual shareholders are not liable for debts of the Corporate (there can still be director liability but this can be limited).
|Separation of asset ownership||Challenges may arise distinguishing personal vs trust assets||Easier distinction between trust and personal assets as they are owned in different names |
This offers a level of protection with personal assets of directions.
There are also other mechanisms within the trust deed itself that can limit the control of the trust which will assist with asset protection.
|Death or change of trustee||Assets need to be transferred to a new trustee. |
This can be a time consuming and burdensome exercise, especially if trust has multiple asset.
If the trust owns real estate transfer duty will be required to be paid (*in most states of Australia) on the change of the trustee
|Simpler succession and control.|
If the Company constitution allows appointment of successor directors then the appointment of a successor director can be done by a resolution of the current director/s .
If you can appoint a successor director you must put this in place while you are still well and of sound mind. The sooner you act, the better.
The successor director can then be appointed by a change of directorship through ASIC.
This change does not trigger transfer duty being paid if the trust assets are real estate.
Unfortunately, very few Company Constitutions allow successor directors to be appointed, which is why it’s so important that your documentation is reviewed and revised if necessary.
|SMSF considerations||Minimum 2 individuals for set up and max 4 individual trustees|
Asset risks may be magnified if the SMSF defaults on repayments on property held in the trust
|A Corporate trustee provides the benefits of limited liability so that in the event of the trust incurring any liability, individual directors are unlikely to be held personally liable through (though there are exceptions to this)|
It is important you obtain legal advice when deciding whether you appoint an individual or Corporate trustee because there are risks that can be mitigated and a cost / benefit analysis that needs to be done so you can decide on the right appointment for your needs.
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