Legal Tip 52: Who should be the shareholders of a trustee company?

It could be done like that. But I wouldn't worry too much about bakruptcy. If it happens the appointor would be able to change the trustee well before hand.

 

There is also the option of a special purpose trustee company where the rules are embedded into the constitution. On death, bankruptcy or incapacity of Mr X a cascading sequence of events are triggered and control of those shares is set beyond that of a hope that a will may deal with the problem. The constitution has rules about who controls the trustee. Could be one or a sequence of persons and can even include independent persons as safeguards. Perhaps even to bypass the spouse or at least have some limits so the spouse needs some approval to make changes. Such a set of rules allows the shares to sit outside a deceased estate in a manner not unlike a testamentary trust so that greater control is given over controlling shareholders. One problem with the 40% to wife is she could end up stripping the trust eh Hubby dies. She strips the trust and kids get $0.....Another problem is kid inhert 20% control and his wife drags the trust into the divorce when it may have been a issue not contemplated a decade or two before. Or the kid is a certain minimg magnates daughter who studied law.....

I now routinely discuss such concepts before referring these issue to solicitors who have the right solutions. The days of off the shelf trust deeds and companies has gone.

 

Thanks Terry

Is the second trust that holds the shares in the first trustee company a beneficiary of the first trust also?

 

That would depend on the wording of the deed, but i potentially could be

 

Could you also have an appropriately worded shareholder agreement for the trustee company either restricting the appointment of directors to blood relatives of the parents etc? or to limit it to the appointor?

 

Would likely need to incorporate that into the constitution of the company as well

 

Yes, I would assume it would need to be in both. just thinking of the situation where you had separate trusts for different businesses or different levels of risk, you wouldn't want to have an additional trust holding each trustee company as it would just become endless.

 

I don’t think it too important to worry about shareholders of a trustee in most cases. Appointor can change trustee

 

Hi @Terry_w If Tom’s wife is the only shareholder of the company trustee, would the assets in family trust safe from creditor? Lets say directors were used to be both tom and wife and then tom was removed due to bankruptcy, so his wife is the only director now. And the trust’s appointor are still tom and wife (jointly). Thank you very much

 

Shareholder of trustee is only one aspect to consider.
A more important one would be how the trust was conducted.

 

what do you mean by the trust was conducted? Do you refer to ‘how trust income was distributed every year’? What if there is no pattern and distribution % change every year @Terry_w

 

Some people seem to think saying the word ‘trust’ is some sort of mantra which offers magical protection against creditors but this is not the case. It might offer no protection what so ever if not set up and operated correctly

 

Even less protection from a former spouse and the family court. I recently received a call from a client in a recess during a family court hearing. He thought a trust would mean the property is safe and the court (and his soliictor) basically said he keeps the property and assets in the trust and it cuts his share otherwise. He called to consider winding up the trust to avoid that. He thought they would ignore the trusts assets and he would get them not his ex.

 

He didn't get basic legal advice when setting up the trust it seems. Its pretty uncontroversial that the family law will include controlled trusts when working out property settlements.

 

He just assumed the court would split the trusts too but as he learned they dont want that complication. His solicitors set him straight and so the trust property was earmarked for sale and the court orders updated.

Happens with super too.... Courts tend to leave each members super alone unless there is a compelling issue and they adjust other assets. BUT if its the predominant asset etc it can come into play.

Eg Fred and Wilma have $400K of super and $200K respectively. Their other assets are $1m (all cash), Family court may order half and so they may order cash of $400K to Fred and $600K to Wilma so that fred has $400K super + $400 cash = $800K and Wilma has $200K super and $600K cash = $800K.
Sometimes the all cash isnt ideal and one party wants less super more cash (eg buy a home) and then its back to solicitors negotiations.