Legal Tip 305: Change of Trustee with Title Held by Old Trustee?

Discussion in 'Legal Issues' started by Terry_w, 7th Sep, 2020.

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  1. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    The trustee of a trust is usually changed by deed. After this happens the title of the trust property should be transferred from the old trustee to the new trustee. But sometimes this takes a while and sometimes it doesn’t even happen.

    So what is the status of the property held by the old trustee?

    They will be, generally, deemed to be holding it as bare trustee for the new trustee.


    Example

    Homer owns a property as trustee for his son Bart. Homer is about to become bankrupt so wants to resign as trustee and put a new trustee in place – because someone who is bankrupt cannot be trustee.

    Deeds are signed and Marge is now the new trustee of the property for Bart.

    Homer is bankrupted before title to the property is transferred.

    Homer now holds the property as trustee for Marge who holds the property for Bart.

    Note that this property would generally not fall into the hands of Homer’s creditors whether it was transferred before or after his bankruptcy.
     
    Terry_w, 7th Sep, 2020
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