One of the means by which businesses and individuals can protect their assets and secure several tax benefits is the use of trusts, however, the entire process must be done correctly, which is why commercial lawyers are essential due to their knowledge and experience in helping to set up trusts and ensuring they are fully compliant with the prevailing legislation.
One choice that has to be made concerning trusts is how they are to be managed, and this normally boils down to choosing whether a corporate trustee or an individual trustee is to carry out that role. Each of these choices differs in several ways which has implications for trust beneficiaries so we thought it would be useful to outline some of the relevant facts.
The Four Important Roles Relating To Trusts
Whenever a trust is created, there are normally four entities that play a key role in its creation and management. These four key players are:
Appointor: The appointor has the right to nominate trustees and also remove them should it be deemed necessary. This means that in terms of whether an individual or corporate trustee is appointed, it is within their power. When the trust is being created for an individual it is usually them who has the role of appointer.
Beneficiaries: As the name suggests, these are the individuals or entities that the assets within a trust should benefit. A key point about the trustee is it they determine who should benefit in a discretionary trust arrangement.
Settlor: This is the role which initially creates the trust. Although the settlor could be any individual, normally they are either an accountant or a lawyer, often a commercial lawyer. Once the trust has been established, the settlor does not have a formal role although they may be retained for legal and financial advice moving forward. Note, a settlor cannot also be a beneficiary of the trust.
Trustee: Arguably the most important role, as it is the trustee who manages the assets of the trust and is responsible for its administration. In the case of the aforementioned discretionary trust, it is the trustee who decides how much and to whom any income and capital of the trust should be distributed. As we have highlighted, the trustee can be an individual or a corporate entity, such as a company.
Individual Trustee Basics
An individual trustee is a person, although it can be two or more persons also. The primary benefits of an individual trustee are that the costs are minimal by comparison and the process of appointing and using them is simple. For example, the trust management fees will be low.
However, there are disadvantages too, which include much less protection of trust assets should the individual trustee face legal action, and distinguishing between the assets owned by the individual trustee and the trust’s assets can also be complicated.
Corporate Trustee Basics
A corporate trustee is a company tasked with the role of managing a trust’s assets. This is often a shell company that has no assets and no obligation to file tax returns, which is beneficial. The other main benefit of a trust having a corporate trustee is the company’s liability for the trust’s assets which offers far more protection than with an individual trustee. There are also fewer legal complexities compared to those where an individual trustee faces legal action, for example.
The Best Option?
If the value of the trusts’ assets is relatively low, and there is a need to keep costs low also, then an individual trustee may be the better option. However, if there are significant assets and maximum protection is desirable, then a corporate trustee is, without doubt, the path to follow. If you remain unsure, then your commercial lawyers can assess and advise on the best option for your specific circumstances.
One of the means by which businesses and individuals can protect their assets and secure several tax benefits is the use of trusts, however, the entire process must be done correctly, which is why commercial lawyers are essential due to their knowledge and experience in helping to set up trusts and ensuring they are fully compliant with the prevailing legislation.
One choice that has to be made concerning trusts is how they are to be managed, and this normally boils down to choosing whether a corporate trustee or an individual trustee is to carry out that role. Each of these choices differs in several ways which has implications for trust beneficiaries so we thought it would be useful to outline some of the relevant facts.
The Four Important Roles Relating To Trusts
Whenever a trust is created, there are normally four entities that play a key role in its creation and management. These four key players are:
Appointor: The appointor has the right to nominate trustees and also remove them should it be deemed necessary. This means that in terms of whether an individual or corporate trustee is appointed, it is within their power. When the trust is being created for an individual it is usually them who has the role of appointer.
Beneficiaries: As the name suggests, these are the individuals or entities that the assets within a trust should benefit. A key point about the trustee is it they determine who should benefit in a discretionary trust arrangement.
Settlor: This is the role which initially creates the trust. Although the settlor could be any individual, normally they are either an accountant or a lawyer, often a commercial lawyer. Once the trust has been established, the settlor does not have a formal role although they may be retained for legal and financial advice moving forward. Note, a settlor cannot also be a beneficiary of the trust.
Trustee: Arguably the most important role, as it is the trustee who manages the assets of the trust and is responsible for its administration. In the case of the aforementioned discretionary trust, it is the trustee who decides how much and to whom any income and capital of the trust should be distributed. As we have highlighted, the trustee can be an individual or a corporate entity, such as a company.
Individual Trustee Basics
An individual trustee is a person, although it can be two or more persons also. The primary benefits of an individual trustee are that the costs are minimal by comparison and the process of appointing and using them is simple. For example, the trust management fees will be low.
However, there are disadvantages too, which include much less protection of trust assets should the individual trustee face legal action, and distinguishing between the assets owned by the individual trustee and the trust’s assets can also be complicated.
Corporate Trustee Basics
A corporate trustee is a company tasked with the role of managing a trust’s assets. This is often a shell company that has no assets and no obligation to file tax returns, which is beneficial. The other main benefit of a trust having a corporate trustee is the company’s liability for the trust’s assets which offers far more protection than with an individual trustee. There are also fewer legal complexities compared to those where an individual trustee faces legal action, for example.
The Best Option?
If the value of the trusts’ assets is relatively low, and there is a need to keep costs low also, then an individual trustee may be the better option. However, if there are significant assets and maximum protection is desirable, then a corporate trustee is, without doubt, the path to follow. If you remain unsure, then your commercial lawyers can assess and advise on the best option for your specific circumstances.
