Trusts - General questions
Should I use a corporate trustee?
Many people wonder whether they should have one or more individual persons as trustee or whether to use a company as trustee of their trust.
A corporate trustee has several advantages over an individual trustee:
A corporate trustee, being a separate legal entity, can exist indefinitely, whereas individual trustees will eventually die, may become incapacitated, or may want out for another reason. This segues in nicely to the next advantage: asset ownership – see below.
- Legal ownership of the trust assets
Assets in a trust are, legally speaking, held in the name of the trustee, not the trust. If the trustee is a company, all well and good. By contrast, if the trustees are husband and wife and one of them dies, the remaining trustee will need to change the legal ownership of the assets. This can create a real headache and a lot of paperwork, at a difficult time in the remaining trustee’s life.
- Limited liability
Individual trustees can be personally liable for decisions they make in relation to trust assets. In contrast, the directors of corporate trustees have some protection because the corporate trustee’s liability will generally be limited to the assets of the company itself.
So, while it may cost a little bit more to set up your trust with a corporate trustee, it’s probably going to save you time and money later down the line.
What is a trustee?
A trustee is the person (or entity) which administers the trust on a day to day basis. This includes, among other things, investing trust money, buying assets, lending and borrowing money, carrying on business, filing tax returns, keeping adequate records for the trust, and distributing trust income to beneficiaries or unit holders as the case may be.
Who can be the trustee?
Any individual, company, or incorporated association can ordinarily be a trustee provided that the person or directors are over 18 and not bankrupt. The trustee should be someone in whom you have total confidence as they control the day-to-day running of the trust. In a family trust, typically the trustee is a company, the directors of which are also the beneficiaries. This is because there is a legal separation between a person in their capacity as a director of a company and a person in their capacity as a beneficiary of a trust. In this way, the beneficiaries have effective total control and management of the trust.
Does a trust have to have a trustee?
Yes every trust must have a trustee. For a trust to exist there must be 3 distinct elements: the trust property, the trustee who holds the trust property, and the beneficiaries (or unit holders in the case of a unit trust).
What do the Startup World trust deeds allow the trustee to do?
The trustee has very broad powers to deal with the trust assets in any manner it sees fit for the benefit of the trust, a beneficiary or a unit holder. This includes:
- Buying and selling property
- Investing trust funds
- Carrying on business using the trust funds
- Borrowing and lending money
- Taking legal action on behalf of the trust
- Taking out insurance for the trust property
- Distributing income and capital to unit holders or beneficiaries
How long does a trust last?
A trust must vest (be wound up and its assets distributed) within 80 years of being set up but can be wound up at any time before that. Our trust deeds provide for the trust to have a maximum life of 79 years.
How is a trust wound up?
The trustee winds up a trust by:
- making a written declaration that the trust is to vest
- collecting all of the trust assets and converting them into cash (unless the trustee proposes to make an in specie distribution)
- paying all debts of the trust, including tax
- for discretionary trusts, using their discretion to determine which beneficiaries are to receive the trust assets and distributing the assets (or cash) accordingly
- for unit trusts, distributing the assets (or cash) according to the unit holders’ entitlements
- giving notice to the tax office that the trust has ceased to exist
Must the trustee have an Australian address?
Yes. The address of the trustee determines the law applicable to the trust.