Legal Tip 295: Five Things to Consider when Changing Trustees

Changing the trustees of a trust is a bit of hassle with some major things to consider where the trustee holds valuable assets. It is best to carefully consider who should be the trustee when the trust is set up. But circumstances change with some reasons for wanting to change trustee being to improve asset protection, for lending reasons, or control reasons generally.


So what to consider? There are many things, and specific legal advice should be sought but here are the 5 main ones


a) Who can do it?

A trustee can only be removed and a new one appointed by the person or persons who have the power to do so. This is usually the appointor, but not always and not always the appointor alone. A trustee might also remove themselves. A court can also remove and appoint trustees.

It must be done properly too. If the deed requires the appointor to appoint the trustee in writing, then if not in writing it will be ineffective and any future decisions of the trustee will be in effective as they are not the trustee. These sorts of issues often come to light when there is a death or divorce and someone not in control starts digging looking for issues.


b) CGT

Will the transfer of assets from the existing trustee to the new trustee trigger CGT? Generally, a mere change in trustee will not trigger CGT, but it could in some cases.


c) Stamp Duty

A change in trustee also will not generally trigger stamp duty on the transfer of assets. But it could, especially in NSW where the laws say duty will apply if the new trustee or a continuing trustee can benefit from the trust.


d) Mortgages and Loans

Where there is a mortgage over the property held by the trustee, any change in ownership will need the consent of the mortgagee. The mortgage will need to be discharged, title transferred to the new trustee and then a new mortgage lodged. This will generally entail a new loan application as the borrower will be changing. Re-qualifying for servicing will also be needed.


e) Administrative Stuff

New bank accounts will be needed – or it might be possible to keep the same account numbers but change the ownership to the new trustee.

Any shares held by the trustee will need to be transferred to the new trustee – much simpler than changing titles to real property but still a pain in the arse. Land titles on property will also need to be changed.

It is also possible that title is not changed, and the original trust can act as bare trustee for the new trustee. Some deeds allow this.


Seek legal advice before contemplating the changing of Trustees.

 

Hi Terry, is changing the shareholder of a trustee of a trust still need consent of the mortgagee? Like as it is changing the trustee?

 

that will depend on the loan agreement you signed
I am not sure it generally would or not.

 

Thank you Terry.