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Legal Tip 43: Suing a Corporate Trustee

Discussion in 'Legal Issues' started by Terry_w, 31st Jul, 2015.

  1. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Suing a Corporate Trustee


    Private companies are separate legal persons at law. Companies are not the directors or shareholders behind them. Even where there is a company with 1 shareholder who is also a director the company that company is a separate person to the director.

    Companies can enter into contracts just like a person can. They can be sued in contract or in negligence just like a person can too.


    Liability of a company generally is restricted to the company. The directors of the company are not liable for the company debt, except in 2 circumstances

    1. because of legislation that makes them personally liable (such as trading while insolvent), and/or

    2. Because of contract law - they agreed to make themselves liable for company debts by given a personal guarantee for example.

    So where a trust is being set up it is a good idea to arrange for a company to act as trustee. This is very important where there will be a business operated, and is also important for where the trust will hold assets which carry risk. Real Estate carries a certain amount of risk as the owner of the property can be sued by tenants and others entering the property.


    So where there is any risk having a corporate trustee can limit the liability to the company which is acting as trustee. If the trust is sued it will be the trustee that cops it - see my previous legal tip.


    This is why the trustee should not own any other property other than trust property. The company will be a $2 company with no assets set up only to operate as trustee.


    The assets of the trust will still be at risk though.
     
  2. willy1111

    willy1111 Member

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    @Terry_w

    Thanks Terry,

    It is often suggested/advised to use a company as trustee rather than individual name just to make it so much clearer assets aren't those of the individuals.

    Curious what your thoughts are for trustee of a SMSF that only invests in shares/cash.

    Ie would it be smarter to have a corporate trustee over individual so it is very clear who owns what to outsiders looking to take you to the cleaners.
     
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Asset protection from litigation is only one aspect. Other benefits include clear segration of trust assets from personal assets and asset protection on death - allways better to have a company as trustee for these reasons and more so with a SMSF as these are special trusts with a number of other issues.
     
  4. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Willy

    A SMSF that has human trustees has loads of issues now. The ATO can impose penalties on Trustees for apparent breaches of law for mistakes etc. Human Trustees are personally jointly and severally liable and can have far more serious penalties imposed. Note also that Trustee Directors can be fined and are unable to recover the cost from the fund.

    There really is no place for a SMSF with human trustees other than a short term view that it saves money on ASIC fees. That is $46 a year....And $600+ upfront. If you add a member or one dies with human trustees the smsf must change bank accounts and every investment so it complies with all names. I refuse point blank to setup a SMSF with human trustees. It paints a picture of the people you deal with if they squabble over basic costs like that.

    A good comparison is here : https://www.ato.gov.au/Super/Self-m...e-individual-trustees-or-a-corporate-trustee/

    Note that each human trustee can have an administrative penalty imposed where a company cant.