A trust is a legal arrangement where someone (trustee) will manage the assets of an individual or company for beneficiaries. Trusts are separate entities for tax purposes only, but not considered separate legal entities. A corporate trust works more or less same way as an individual trust. However, there are a few key points that differ between the two types:
- Corporate trusts revolve around the company structure
- The trustee of the corporate trust is the company itself
- The directors of the company are the members of the trust
- Much easier to add or remove directors than with no trust
- Only one director is needed
- If any new members are introduced to the trust, they need to become a trustee as well
Why set up a corporate trust?
Trusts have long been used as effective tools for investment and tax purposes. When your assets are under a trust, it means they are all protected from creditors. You are also able to control how the assets are distributed, and name beneficiaries who will inherit it in the event of a death.
As well as the above, as the owner of the company you can have control in how the trust is run. It is not as though once it’s set up full control is passed onto someone else.
Difference between a corporate trustee
While the terms are almost the same, there is a major difference between a corporate trust and a corporate trustee. A trustee is the person or company that is in charge of looking after the assets and growing the fund as much as possible. Companies exist that solely act as trustees.
It is possible to have a corporate trustee look after your corporate trust as well. This means you can leave the management to employees who are experienced in growing similar funds and managing them effectively on your behalf.
Advantages
- Limited liability because the company is a separate legal entity.
- It is much easier to separate personal and corporate assets because the company is a separate entity.
- The trust doesn’t cease when a director dies. There is an easier succession process.
- Regular trusts are taxed 46.5%, but a corporate trust is only 30%.
Disadvantages
The disadvantages of setting up a corporate trust are not particularly worrying. As long as you are able to keep records and afford to have a trust lawyer advise you, you should definitely establish one sooner than later.
- Mainly the costs and complexity that come with starting a company.
- Record keeping for that company.
Conclusion
In summary, there are far greater advantages to a corporate trust than disadvantages. They are useful in both personal and corporate capacities for many reasons. The way a corporate trust operates is essentially almost the same as an individual one. There are just some extra formalities since it is a business. However, these could be advantages in the end.
You are always able to discuss any further issues in greater detail with a trust lawyer.
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