Legal Tip 421: It’s in the Name of the Trust – No it’s Not!

People often think a trust is a legal entity, but it is not, it’s just a relationship where someone owns something for someone else.


A trust cannot legally be recorded on the title to property and when a property is held in trust it will be registered in the name of the trustee – or a nominee, which will be acting as trustee for the trustee.


Similar with shares. A trust cannot be recorded on the ASIC register for example. All that is possible is for a shareholder to indicate that they do not beneficially hold the shares, which is another way to say they are the legal owners as trustee for someone else.


With bank accounts the trustee will be the title holder, the account will be in the trustee’s name. But it is usually possible to indicate that they are acting as trustee.


In all cases the legal owner of the assets would be the trustee so the trust assets are in the name of the trustee and not the trust.


Example

Homer sets up a trust with himself as trustee. He says ‘the trust’ owns shares in a company that he also set up, but a search of the ASIC register will share Homer as the owner of the shares.


In shorthand format we might share ‘the trust owns the shares’ but really Homer owns the shares in his capacity as trustee of the trust.

 

And if I had $1 for all the times I am told a company owns property when it is only a custodian for the trust. The property is trust property. But there is no mention anywhere on the title deeds etc that this is the case. This can raise some issues a lawyer will consider and address. How can you ensure that this is well established and able to be proven ? Truth is you cant really but other factors will show this to be the case. eg financial reporting ? There also may be benefits of ensuring that the trustee does NOTHING else so it lacks conflict. eg a company which has a constitution which ONLY allows the company to act as trustee of XYZ Trust. This is how many SMSFs work. They use a special purpose company.

To avoid mass confusion we generally describe (incorrectly) that the trust owns something. The legal owner is the company. The benficial ownership interests are that of the trust. But the true beneficial interest is that of beneficiaries. But until they are entitled that dont have a absolute entitlement. The trustee holds it for them...All common law legal concepts.

It gets even more confusing with a SMSF borrowing. The custodian trustee company will borrow (not the smsf) and own the property but a deed holds this on behalf of the SMSF Trustee for the benefits of its members and consider that when the loan is discharged the smsf may have its interest back as legal title, But the asset and the loan are in the smsf financials. And the smsf may even have a segregated asset policy that means Mr X has zero interest as a member and its only Mrs X who stands to benefit.

And taking it further a industry super fund likely hasnt got a single asset other than bank accounts in the name of the fund let alone anything that says the members own a thing. . We all trust in the concept of trusts every day. Even a bank account. Does the bank keep my $1K on a shelf somewhere...no. But they account for it as a savings account. Same can occur with marital property. It may be in one legal name or the other. We blindly trust our partner the same way. Generally we have belief in the legal rights of beneficiaries.

Often ownership is not about ownership. Its about a INTEREST in ownership. This is why the main residence exemption doesnt mention title. s118.110
INCOME TAX ASSESSMENT ACT 1997 - SECT 118.110 Basic case