Individual Trustee vs Corporate Trustee

What is an Individual Trustee?

An individual trustee is simply a person who manages a trust. Title to the trust assets will sit with the person as trustee for the trust. Though the person legally owns the assets, they must hold the assets for the benefit of the beneficiaries. Where a trust has multiple trustees, each trustee must play an active role in managing the trust and comply with their duties as trustee. 

Advantages of an Individual Trustee

The main advantages of having an individual trustee are the: 

· low set-up and management costs; and 

· relatively simple set up. 

Since an individual trustee is a person, there is no need to incorporate a company. The individual simply:

· signs the trust deed and a consent to act as trustee; and 

· takes responsibility for managing the trust. 

They will then perform the role of trustee by making distributions under the trust.

Disadvantages of an Individual Trustee

However, there are some disadvantages of having an individual trustee, including that:

· the individual trustee could be responsible for any legal issues with the trust;

· it may be difficult to distinguish between the trustee’s personal assets and the trust’s assets; and

· the trust’s assets will need to be transferred to another entity if the individual trustee dies.

Transferring assets to another trustee entity requires executing a number of documents and, in most cases, transferring the trust’s assets into the new trustee’s name. This can result in significant administrative challenges, particularly if the trust’s assets include shares and real property (e.g. land). 

What is a Corporate Trustee?

A corporate trustee is a company that acts as trustee of a trust. The company is a registered company, much like any other company, but it is often incorporated with the sole purpose of acting as trustee. This means that the company will not conduct business. Like any other company, the corporate trustee has shareholders and directors. Ultimately, it is the directors of the corporate trustee who control the trustee (the company) and consequently control the distributions of the trust. 

Advantages of a Corporate Trustee

There are many benefits of having a corporate trustee. Some of these advantages include:

· limited liability for individuals, as the company is a separate legal entity. This means that if there are any legal issues with the trust, the company is legally responsible and not the directors that are controlling it;

· easier separation of trust assets and personal assets as they are held in different names. As a result, it is relatively straightforward to distinguish which of a person’s assets are part of the trust; 

· greater asset protection. If a person gets sued, for example, assets held in a separate trust with a corporate trustee are the company’s assets and not the person’s; and

· simpler succession and control of the trust in the event of death. Since a company cannot ‘die’, the company continues to act as trustee if something happens to one of its directors and the corporate trustee must simply replace its director. The title to the assets would not change, so the trust’s assets do not need to be transferred in the case of death of a director.

Disadvantages of a Corporate Trustee

The main disadvantages of having a corporate trustee include:

· additional set-up costs; and 

· maintaining records for the entity. 

Although it is possible to use an already registered company as a trustee, this is generally not recommended. It is best to register a new company to act as trustee, so that: 

· its sole purpose is acting as trustee; and 

· there have been no activities undertaken to-date which may affect the company. 

Though there are some additional costs and challenges associated with setting up a trust with a corporate trustee, the benefits of doing so often outweigh the disadvantages.

Key Takeaways

If you decide to set up a trust, you will need to appoint a trustee to control the trust. A trustee can be either: 

· an individual trustee (a person); or 

· a corporate trustee (a registered company). 

Setting up a trust with a corporate trustee may require more time and additional cost, as you will need to register a company, but there are many benefits associated with doing so. These benefits include greater asset protection and limited liability. In many cases, a corporate trustee is the best option despite the higher setup costs. 

For more information, please contact us.

I H Professionals & Co Pty Ltd Level 17, 9 Castlereagh Street SYDNEY NSW 2000 Email: info@ihprofessionals.com.au Web: www.ihprofessionals.com Tel: 02 8041 8276