What does it mean to appoint a corporate trustee in a family trust?

 

Many people establish trust structures as a mechanism for control, asset protection and tax minimisation.  In setting up a trust, you may appoint an individual or a company as the trustee of your trust.  In a broad sense, the trustee is the ‘brains’ of the trust and central to functions of control.  Many people appoint an individual as their trustee to minimise the procedural aspect and ‘save costs’ on a short term basis while still establishing a mechanism of protection. 


Although there are many benefits of appointing an individual as the trustee of your trust, the appointment of a corporate trustee provides an additional layer of protection that an individual in its capacity as trustee cannot provide. A corporate trustee is a proprietary limited company appointed as the trustee, and, as its own separate legal entity, controls the trust.  As the trustee is personally liable for the trust’s liabilities, it is common for the trustee appointed to be a shell corporation with no, or minimal, assets.


So what are the advantages of appointing a corporate trustee in a discretionary (family) trust?


Limited liability


Companies have the benefit of limited liability. Consequently, if a corporate trustee suffers any liability, the individual directors will not suffer personal liability (other than in exceptional circumstances). Conversely, an individual who acts as trustee exposes their personal assets if they incur any liability as trustee of a trust


Succession made easy (easier)


The only guarantee in life is death.  Appointing a corporate trustee provides for easy (easier) succession as a corporate trustee does not cease upon the death of one of its directors.  Where an individual is appointed as trustee and they die (in particular if they are the only remaining trustee), this may cause difficulties with regards to the administration of the trust as they cannot continue to control the trust.


Assets kept separate


It is much easier for a corporate trustee to maintain a separation of personal assets and assets of the trust when they are held in a different name.


Simplicity of ownership


Appointing a corporate trustee simplifies the process where ownership of the trust’s assets may need to be changed.  Where a corporate trustee is appointed and a director(s) or shareholder(s) of a company change, the legal ownership of the assets remains the same.  The corporate trustee can effectively control the trust by appointing the director(s) of the corporate trustee.


If you would like more information about asset protection and how to minimize your risk, speak to one of our friendly staff at Bambrick Legal today.


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