One of the most important things to do when setting up a trust, is to decide whether you should have a corporate trustee or individual trustees. There are several key differences between the two of them that you should keep in mind when deciding between the two of them. By knowing the features of both types of trustees, you can decide what type is best for your needs.
What Is a Trust?
A trust is a legal arrangement where the trustee holds property on behalf of the beneficiary. The trustee will therefore manage the assets for the benefit of beneficiary. Furthermore, they hold legal title to the assets and have the authority to perform certain actions, as established in the trust deed. A trust deed is the legal document that governs the relationship between the trustee and the beneficiary.
Moreover, the trust will form a fiduciary relationship between the trustee and the beneficiary. The fiduciary relationship will require the trustee to abstain from performing acts that are against the interest of the beneficiary or in their own interest. Finally, unless a corporate trustee, trusts are not distinct legal entities.
What Are the Common Features of Individual and Corporate Trustees?
Firstly, trusts require that personal property is held separately from trust property. Secondly, trustees cannot be paid for their services. Thirdly, breaches of laws regarding trust are on the responsibility of the trust itself rather than the beneficiary.
What Are the Characteristics of Individual Trustees?
The fundamental benefit of individual trustees are that they are relatively inexpensive to set up and run. This is because, trusts with individual trustees do not have to pay fees to ASIC. Moreover, the trust’s administrative fees are relatively inexpensive. However, a key detriment is that individual trustees can be personally liable for issues resolving from the trust. Furthermore, transferring of assets from trustees to each other if a trustee dies or wishes to cease being trustee can be difficult.
What Are the Characteristics of Corporate Trustees?
Essentially, corporate trustees, known as directors, will run these types of trusts as a distinct legal entity. As they are companies, directors of a trust enjoy the protection of limited liability. Generally, directors cannot be personally liable for external legal issues involving the trust. Furthermore, changing directors is relatively easy due to the trust being distinctly separate from its trustees. However, you will face higher operative costs for corporate trustees as the trust is registered as a company.
Conclusion
Therefore, it is important to note the difference between the two types of trustees, when you are establishing a trust. Chiefly, it will depend on your circumstances for which structure is better for your finances or business. If you need further clarification or assistance to establish a trust, it is best to get in contact with a trust lawyer who can provide comprehensive advice to your specific situation.
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