Aintree Group Legal’s Series on Trusts – Part 3
As part of Aintree Group Legal’s ongoing series on Family Trusts, this week we look at the benefits of a corporate trustee.
Is a Corporate Trustee the Answer?
We are sometimes asked why trusts of all kinds – family trusts, unit trusts, self-managed superannuation funds – should have a company as trustee rather than individual trustees.
After all, it costs money to incorporate a company and keep it registered each year with ASIC. And it costs nothing to nominate an individual as trustee.
While that is technically true, you also get what you pay for. That’s a useful reminder when one of the options in front of you appears to cost nothing.
Why does this matter?
Typically, control of a trust is vested in the trustee and the appointor (depending on the trust in question and how it is structured).
The trustee has administrative control of the trust and is the registered owner of its assets. Therefore, transfer of the management of the trust (for instance, during a transfer between generations) can be easily affected by simply transferring shares and changing directorships in the corporate trustee. To affect this same outcome using individual trustees would require a conveyance of all trust assets from the old trustees to the new trustees. This can be an expensive process.
In this way, a single trustee company can provide continuous succession over multiple changes in management over multiple years. It can exist indefinitely, in contrast to individual trustees who must inevitably retire, lose legal capacity, pass away or simply lose interest, with each such event requiring a reworking of the ownership of trust assets.
In the long term, this can realise significant cost and administrative benefits, particularly for complicated structures.
Every option has pros and cons
It should be noted that corporate trustees present their own considerations.
In addition to registrations costs, directors of corporate trustees will be subject to directors’ duties as well as the recent obligation to have Director ID Numbers.
The directors will also be appointed and vote according to the procedures set out in the constitution for the corporate trustee (as opposed to any rules set out in the trust deed). This ordinarily means that:
- directors will be appointed by the shareholders of the corporate trustee;
- where there are multiple directors, they will decide matters by a simple majority; and
- if the intention is that multiple directors are to make decisions unanimously, the constitution will need to be reviewed to ensure that this is achieved.
As such, the company’s constitution may require some special amendments.
Aintree Group Legal will be happy to discuss your family trust and succession needs. Contact us today.
For more on our series, read Part 1 and 2 below!