Continuing my series of articles on structuring, this time we will focus on trusts. Trusts are complex legal structures which can be confusing for most people – even most lawyers do not really understand the concept. A trust is not a separate legal entity but it is a relationship. A trustee will own property on behalf of the members of the trust. These members can be beneficiaries of a discretionary trust, unit holders of a unit trust or members of a SMSF. It is therefore very important to consider the structure of the trustee. Broadly there are 3 common ways that are the most common trustees: 1. Individual 2. 2 individuals (often spouses) 3. A company Since a trust is not a separate legal entity the trustee will own the trust assets. So Dad acting as trustee for the Smith Family Trust will own the bank account, any real property owned by the trust and any shares owned by the trust. This poses 2 main problems. a. It may be difficult to determine which property dad owns in his own right and which property he owns as trustee for the trust. b. Dad will be personally liable for any debts of the trust. There is also a 3rd problem often over looked: c. Dad resigns as trustee or dies – title has to be changed for all trust property. Two individuals acting as trustee results in all the above issues, but also another is that both trustees will occupy a single office so they must work as one. If they cannot agree then they cannot make a decision. If 3 trustees then 2 cannot override the 3rd for example. For these reasons (and others) a company is preferred to act as trustee. The company should not be trading and its only activity will be acting as trustee. So there can be no doubt that all the property owned by the company will be owned in its capacity as trustee. Death of the director won’t necessitate the changing of the title to property because the company will survive the death of the individual(s) behind it. Death of director will mean a new director comes in and can continue to operate the company. If there are 2 or 3 persons behind the company acting as directors they need not agree on all decisions (this will vary depending on how the company is set up). The company itself, as a legal person will be making the decisions. The most important aspect of the company is that it limits liability. A company is a separate legal person to its members. Shareholders cannot be liable for the company debts (unless they personally guarantee company debts). A director is also not liable for the debts of the company or trust, unless they have contravened laws such as causing the company to trade while insolvent or breaching OH&S laws etc or unless they have given personal guarantees.