Legal Tip 265: Using a Professional Trustee Company as Trustee of Discretionary Trust?

Discussion in 'Legal Issues' started by Terry_w, 17th Jan, 2020.

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  1. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney

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    What! I hear you ask, but wait, there can be good reasons to appoint an outsider as trustee of ‘your’ trust. This is especially so after your death.


    Your kids might be no hopers, drug addicts, have a handbag addiction, or be non-residents at the time of your death. So, you could arrange for none of them to control your trust yet to still be drip fed income from the trust.


    Example

    Homer sets up a discretionary trust and funds it with a $999,000 gift which is invested in shares. Homer dies.

    Homer’s children are all no-hopers

    a) Bart is a serial businessman with no record of success,
    b) Lisa is part of a strange religion which requires its members to donate any inheritances to the group so their leader can live in luxury,
    c) Maggie was currently in prison for drug related offences and smokes cigarettes.


    The terms of the trust mean Homer’s 3 children will not get control of the trust. Control will pass to a professional trustee company which will distribute the income of the trust to the children each year. When one child dies 1/3 of the trust capital will pass to that child’s estate, unless they are bankrupt at that time.

    The trustee has discretion to release the capital of the trust on extreme emergency situations.

    Homer figured if any of the kids controlled it they would waste the money and it would be all gone just after the time of his funeral. This way he can drip feed them after his death slowly. He has no one else that can act as trustee or controller of the trust for him. Ned is now married to Marge, Barney is on the verge of a liver transplant and Mr Burns is too greedy.

    This is one option worth considering with a lawyer
     
  2. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    I have seen a few and the fees can range between reasonable and excessive. One managed the assets for a elderly lady in care and they reliably paid all the bills and investments and payments etc. They also appointed PM to manage her home and rent it. At year end they passed on all information for tax purposes and she instructed we review and report to her. She didnt want to entrust her finances to any family as none of them could ever agree on a thing. On her eventual death her estate was handled seamlessly.
     
  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney

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    They seem to charge fees based on the size of the trust - in terms of assets. Might be 1% (or the capital) per year for a larger trust with $1mil+ in assets.
     
  4. Trainee

    Trainee Well-Known Member

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    Isnt this fairly common with private banking services?
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney

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    Its very common to use a professional trustee for a variety of reasons. There are many out there - big players too
     
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  6. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    No- Private banking wont be a trustee company. Its a legal requirement s601RAC Corps Act + regs and other + state laws. They are licensed by ASIC and / or also a registered trustee company (A suitably licensed AFSL can also provide some trustee services - confused?) . Not a banking license. Many trustee companies also act like a private banker by facilitating payts and financial matters but the issue of who their client is (deceased, incapacity etc) often limits them providing a customer facing service.

    The likes of Perpetual, AET etc....