Do I need a corporate trustee?

The trustee of a trust will usually be either a corporate trustee or one or more individual trustees.

In most jurisdictions, a maximum of four individual trustees are permitted to act at any one time.

While establishing a trust with one or more individual trustees may seem like the simplest approach, it has a number of significant disadvantages.

These include:

• The trustee being personally liable for the debts of the trust and by will not receive the benefits of limited liability, as discussed in previous articles

• If the trustee wishes to resign for any reason, significant administration costs may be incurred to transfer all assets of the trust to a new trustee

• Similarly if a trustee becomes unable or unwilling to act for any reason (for instance, due to incapacity), difficulties can arise in transferring the assets of the trust to their successor, particularly where the previous trustee’s signature is required

• The trustee’s succession planning options are limited and usually consist primarily of them nominating one or more successor trustees

These disadvantages can all be addressed easily with the use of a corporate trustee and in most instances, the initial cost of establishing the company (i.e. the ASIC fee of around $500) is more than outweighed by the long-term benefits.

The benefits include:

• Limited liability for the shareholders of the corporate trustee

• Flexibility as to how the shareholdings and directorships of the corporate trustee are structured

• The ability to adopt tailored provisions in the trustee company’s constitution, to regulate decision-making and succession for the trust

The use of a corporate trustee also simplifies any future succession exercise, as control of the trust can be handed on via the shareholdings (and ultimately, directorship) of the trustee company without requiring any assets or liabilities or be transferred to a new trustee.

This typically results in significantly lower administrative costs and potentially eliminates the need to notify third parties (such as share registries, the Titles Office and financiers) of the changes.

For further information, please contact Patrick Ellwood on 0400 503 111 or patrick@cloverlaw.com.au.