Legal Tip 138: Advantages of a Corporate Trustee over an Individual Trustee

Discussion in 'Legal Issues' started by Terry_w, 15th Jun, 2016.

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  1. Terry_w

    Terry_w Structuring Lawyer and Finance Broker - all states Business Member

    18th Jun, 2015
    What are the advantages of a Corporate Trustee over an Individual Trustee

    There are many advantages of having a company act as trustee of a trust, rather than a person act as trustee. Some of these are:

    1. Liability

    A trustee is personally liable for the debts of a trust. An individual trustee entering a contract will have their personal assets exposed. Where a company is trustee is liability is generally limited to the assets of the company – which will generally be ‘$2’.

    2. Separation

    A trust doesn’t exist as a person, the trustee is the relevant legal person – it is the one that has names on title, enters contracts, borrows etc. So there is often confusion over whether the assets owned by the trustee are trust assets or the trustee’s personal assets.

    Where there is a company acting as trustee, and where that company does nothing other than act as trustee there is a clear separation for all to see.

    3. Death

    When a trustee dies the trust continues on under new control. This means the title to all trust assets need to be changed – land titles, bank accounts, share ownership registration etc. Where a company is trustee the title can stay the same and new directors can be appointed.

    4. Lunacy

    I was reading a will trust today and it had the word ‘lunacy’ in it. If a trustee loses mental capacity they can no longer act as trustee so the trustee needs to be changed. Changing trustee means changing title to the trust assets.

    5. Passing Control

    Say you have set up a trust and wanted to pass control to your kids. If you were the trustee you would have to change title to trust property. If a company were to be trustee the directors could be changed without any change in title needed.

    6. Stamp duty

    In some states, such as in NSW, changing trustee could result in stamp duty if the trustee is a beneficiary and the change results in persons falling into the class of beneficiary.

    7. Privacy

    There is an extra degree of privacy with a company as trustee. People searching for your name would not immediately find properties. They would have to go to an additional step of doing a company search to find out in which companies you have shares and/or are an office holder and then do a search to find out what these companies own. This simple little step stops a surprising number of people because they don’t want to spend the extra $30 or so!

    8. Fines and Penalties

    In some instances penalties can be less for companies. Example, for SMSF, breaches of the SIS Act will result in smaller amounts being levied for companies compared to individual trustees as each trustee is fined.

    9. You cannot contract with yourself

    But you can contract with a separate legal entity such as a trustee company which you may or may not control by being director and/or sole shareholder.

    10. You cannot be the sole beneficiary and trustee

    A trust by definition is where some holds property for someone else. It is a separation of legal and equitable ownership. So a person could not hold property as trustee for themselves. But a company which they control could – this is important for SMSFs as a SMSF with one member must have a company as trustee.

    11. Borrowing

    If there was a trust property with equity in it and the trustee’s personal circumstances had changes, such as a credit default or losing their job, it may be impossible for the trustee to borrow.

    But where there is a company as trustee this probably can be easily overcome by placing a new director in and removing the old one. The banks will then lend based on the new director’s personal situation.

    12. Borrowing II

    With SMSFs many lenders reduce the LVR available to personal trustee SMSFs but will lend a higher amount to company trustees. I think there are even some lenders that will not lend to an individual trustee of a SMSF.

    Downsides - For every up there is a down.

    1. Companies cost money to run

    There are annual ASIC fees of around $250. Accountant fees for nil tax returns, registered offices etc. (note the annual review fees by ASIC for a company that solely acts as trustee for a SMSF costs just $41 per year if it is a ‘special purpose company’.

    Many people also forget to pay ASIC fees and then suffer another charge on top.

    2. Companies Cost money to set up

    A company needs to be established and legal advice should be obtained – ASIC and legal costs.

    3. Legal Complexity

    Company law is very complex and this applies to all trustees that are companies.

    4. Easy to breach Corporations Law

    It is very easy to breach the Corporations Act inadvertently.

    5. Privacy

    Under the corporations act all directors and shareholders personal details are available to be searched – including home address, place of birth, date of birth, full name etc.
    PacMan, icic, dreamgirl and 2 others like this.
  2. Terry_w

    Terry_w Structuring Lawyer and Finance Broker - all states Business Member

    18th Jun, 2015
    13. Control

    say one person controlled the trust, others could have some degree of control over this person by owning the majority of the shares of the trustee company.

    A trustee cannot be controlled by others, but a director of a trustee could be.