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Using a Corporate Trustee for a Family Trust

September 4, 2023   Kaitlyn OliverPhilip Evangelou

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    There are many benefits to using a corporate trustee for a family trust, including the longevity of a corporate trustee, reducing liability and advantages for succession planning purposes. A trust is a legal relationship where a trustee, an individual or a company, holds assets such as property, income or shares for the benefit of other people. It is important to understand how a trust operates when deciding if a corporate trustee or individual trustee should be appointed to manage your family trust. 

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    Family Trust

    A family trust is a discretionary trust that holds assets for the benefit of beneficiaries who are linked by family relationships. The beneficiaries have discretionary powers over the distribution of income from the trust. Key roles in this arrangement include:

    • The settlor creates the trust by ‘settling’ a sum of money or property for the beneficiaries.
    • The trustee holds trust assets and property in its own name for the benefit of the beneficiaries. A trustee can be a person or entity and is responsible for managing the trust as well as distributing the funds.
    • Beneficiaries who receive money and make tax adjustments. They also audit the trust annually to check the trustee is doing their job.
    • The appointee is optional and decides whether to appoint or remove the trustee. Their consent is required before changes are made to the trust.

    Reasons for setting up a trust include, but are not limited to:

    • The flexibility of deciding which beneficiaries receive income,
    • Accumulating trust income,
    • The discounted flow of capital gains tax to beneficiaries, and
    • Income from the trust paid by beneficiaries is taxed at marginal rates, compared to a higher individual tax rate without the trust.

    What is an Individual Trustee?

    An individual trustee is a person who manages a trust and legally owns the assets. They must hold the assets for the benefit of the beneficiaries. The benefits of an individual trustee include the low management costs and simple set-up, as the individual merely signs the trust deed and consents to act as trustee. However, appointing an individual trustee to manage your family trust has some disadvantages. The individual trustee is liable for legal issues with the trust, it can be hard to differentiate the trustee’s personal assets and the trust’s assets, and a new trustee will need to be appointed upon the individual’s death.

    What is a Corporate Trustee?

    Corporate trustees are companies created to manage a trust on behalf of the beneficiaries. The assets of the trust must be registered in the name of the company. You may opt for a corporate trustee to manage your family trust because it offers more flexibility for estate planning, tax benefits and limited liability.

    Why Choose a Corporate Trustee for a Family Trust?

    First, a corporate trustee limits trustees’ liability to the assets of the corporation. Trustees are personally liable for debts of the trust. If the corporate trustee has no assets or funds to satisfy a debt, the debtor cannot access the personal assets of the corporation’s directors, such as a person’s home. This option provides greater asset protection because if a person is sued, assets held in a separate trust with a corporate trustee cannot be accessed.

    Additionally, there is no need to change the legal ownership of a trust’s assets when the directors or shareholders of a corporate trustee change. In contrast, legal ownership of a trust’s assets must change when the individual trustee dies, complicating the succession of the trust. Further, it is easier to separate trust assets and personal assets if they are held in different names. Where Home 1 is held by Sarah and Home 2 is held by Sarah’s trust, it is less likely that assets will be mixed. It is harder to separate assets if Home 1 is held by Sarah as a personal asset and Home 2 is held by Sarah as an individual trustee.

    In Summary

    Opting for an individual trustee or a corporate trustee for your family trust depends on your personal and business situation. Although the set-up costs are higher, a corporate trustee carries advantages such as ensuring the ongoing existence of the family trust, greater asset protection and limited liability. You can seek legal advice on setting up a family trust or appointing a corporate trustee by contacting our team of commercial lawyers on 1300 337 997 or by filling out the form on this page.

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    About Kaitlyn Oliver

    Kaitlyn OliverKaitlyn is a paralegal with OpenLegal while she completes her law degree at UNSW. She has previously worked at Redfern Legal Centre, and the Australian Human Rights Institute.

    About Philip Evangelou

    phillipPhil is a director at OpenLegal. He has over 16 years experience working in private practice and in-house counsel in Sydney and London, giving him expertise in employment law, IP, finance, leases, dispute resolution, insurance and contracts.

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