A company used as a trustee of a family trust is called a ‘family trust corporate trustee company’. A ‘corporate trustee’ is only the ‘legal’ owner. It is not the ‘true’ owner. Instead, the ‘true’ or beneficial owner is the Family Trust.
In Australia, a trustee company is commonly trustee for a:
E.g. Smith Pty Ltd as trustee for the Smith Family Trust
The opposite of a ‘corporate trustee’ is a company that trades in its own right. In this instance, the company is both the legal and beneficial owner of the assets. If the company buys shares on the stock exchange, property or business then the true owner is the company.
When you operate a business in Australia you apply for an ABN, TFN and a bank account.
However, a corporate trustee does not need an Australian Business Number (ABN); a Tax File Number (TFN) or a bank account. A corporate trustee has neither an ABN nor a TFN. This is because it, itself, does not trade. The corporate trustee has no ‘beneficial’ interest in the assets it holds for the trust. The corporate trustee merely holds the assets for the ‘true’ owner – the Family Trust.
The Legal Consolidated corporate trustee has no assets. It has no money, so a bank account is not required. Of course, the Family Trust gets a bank account. And the corporate trustee may hold that bank account on trust for the Family Trust. The corporate trustee will let the bank know that it is setting up a bank account on trust for the family trust.
As to the ABN and TFN it is the Family Trust that gets the ABN and TFN.
The corporate trustee does not do tax returns. This is because it does not own beneficially any assets. For tax purposes, the corporate trustee owns no assets.
But some law firms preparing corporate trustees strangely require that you still get an ABN, TFN and open a bank account even though a corporate trustee does not trade! This is rather silly. We confirm that Legal Consolidated’s corporate trustees do not require an ABN or TFN or bank account.
Running a business – any business – is high risk. Business owners want asset protection. To reduce risk you separate, as far as you can, the business from the individual. One method to do this is to trade through a Family Trust with a company as the trustee. This is called a ‘Family Trust with a corporate trustee’. It is a low cost and effective way of carrying out asset protection.
You build your company first. Wait for it to be incorporated. And then you build your Family Trust deed. This is the two-stage process:
The company you are building is also designed to operate as a corporate trustee of an existing Family Trust.
John got a Family Trust deed many years ago. To save money he decided to make himself the trustee. If the Family Trust goes insolvent John, as the trustee, also risks going insolvent as well. But, John has carefully structured his life so that he has no assets, beneficially, in his name. He is the man of straw.
Nevertheless, his accountant suggests for improved asset protection it is better to now have a company as trustee of his existing Family Trust. Accordingly:
Remember, if you change the trustee of your Family Trust then you need to transfer all assets from the old trustee to the new trustee. There is a lot of work in this, particularly if there is real estate.
Since the family trust corporate trustee company:
it is usually not that important as to who owns the shares in the corporate trustee.
You need at least one director of the corporate trustee. (For asset protection you generally only have a single director.) Later, after you build this company, you need to then build the Family Trust Deed. The Family Trust needs:
You can make the Company Director the Appointor of the Family Trust. That is common. And, of course, an Appointor, of the Family Trust is always one of the beneficiaries.
Incorporating a trustee company with ASIC is important.
Our trustee company and constitution comply as a:
As you build the trustee company, check if your preferred company name is available.
However, ASIC prohibits in your corporate trustee company name:
Also, ASIC does not let you use words to mislead people about a trustee company’s activities. Links to the Government, the Royal Family and ex-serviceperson groups are prohibited.
ASIC also refuses offensive and illegal names in a Pty Ltd company used for a trustee of Family Trust.
ASIC allows these abbreviations in a corporate trustee:
Corporate trustees as trustee for a family trust are governed by:
‘Replaceable rules’ (from the Corporations Act 2001) provide a basic set of rules for your trustee company. They are not good. Few accountants, lawyers or advisers recommend them.
Replaceable rules are less than the bare minimum. There are additional powers that a corporate trustee company should have. These are only found in a constitution.
Replaceable rules change at the whim of the current government. Such changes may benefit ‘society’. But they may not be in the best interests of shareholders. In contrast, shareholders amend constitutions anytime.
Yes. Your corporate trustee can also be used as a ‘bucket company‘. This is because Legal Consolidated’s corporate trustees are also beneficiaries of the Family Trust.
But it should not.
Your corporate trustee should only do one job. This is because being the Trustee of a Family Trust carriers great risk.
But since you ask, while you should not, your Legal Consolidated corporate trustee can also perform other duties. For example:
You are married, captain of your football club, an employee and president of your local Rotary Club. All at the same time. As a human being you ‘wear many hats’. You hold more than one job.
Similarly, a Legal Consolidated company can wear many hats. It can carry out many jobs all at the same time. It could be trustee of many Family Trusts. It can also be the trustee of an SMSF. It can also beneficially own a business. It can legally do all of those jobs at the same time.
A company costs money to operate. You pay ASIC a yearly fee. However, best practice is to have one company just do one job.
Consider asset protection. What if one of the family trusts goes insolvent? Often the corporate trustee goes down with the failed family trust. What if that corporate trustee company was also the trustee of other family trusts? Do the other family trusts also fail?
Usually not. Usually, the right of indemnity of a trustee is limited to the assets of the trust for which the liability is incurred. If your corporate trustee company is a corporate trustee for multiple trusts, a claim or liability for one trust does not normally expose the assets of the other trusts. In a perfect world, there is no cross-contamination.
But we do not live in a perfect world. You must establish the beneficial ownership of particular assets to the liquidator’s satisfaction. Often you may own shares and real estate without there being a clear statement as to who is the beneficial owner. Maybe the failed family trust had beneficial ownership – it is up to you to prove otherwise.
While your family trust corporate trustee company wears more than one hat, make sure that each trust has clearly segregated assets.
It is often, in the long term, better to have a separate company for each family trust. It reduces confusion.
Land tax, depending on where the real estate is, may also be less with different Pty Ltd corporate trustees.
A Service Trust is a business in its own right. It provides service to your main business. The main business may be a doctor, dentist, accounting practice, engineer or law firm. Often the service trust is a family trust. These are issues to consider when building a company as a trustee of a service trust. In these examples, the service trust is providing services to a doctor’s surgery.
Firstly, asset protection suggests you only have one director.
Secondly, a director is a high-risk job. So normally you appoint the person at the most risk of going bankrupt. This is the person operating the main business. For example, the doctor, engineering and business owner.
But for a Service Trust, you are setting up a separate business. It is a standalone business. This is apart from the main business. Therefore, in our view, the director is not the business owner or doctor. (Your accountant may take another view.) The director is another person that you can convince to take on the onerous job of being a director. (Try paying them.) Hopefully, you can find someone other than the business owner’s spouse. As having a spouse breaks the asset protection rules. But you may have no other choice.
The Appointor controls the Family Trust from which the Service Trust operated out of. The Trustee company, the shareholders and directors have little power. So from that perspective, no one cares who the shareholder of the corporate trustee is. However, from a service trust perspective, the shareholder should not be the doctor. The doctor’s spouse remains best practice.
Most probably yes. A modern Australian Family Trust has about 400,000 beneficiaries. However, whether you should distribute to them is a question that you ask your accountant.
Most probably yes. A modern Australian Family Trust has about 400,000 beneficiaries. As to whether you should distribute to it is a question to ask your accountant. The service trust is an attempt to move profit away from the ‘main’ business. So I am not sure why you would want to put income back into the ‘main’ business.
The 7 advantages of using Legal Consolidated Barristers & Solicitors to build a family trust corporate trustee company:
Adj Professor, Dr Brett Davies, CTA, AIAMA, BJuris, LLB, Dip Ed, BArts(Hons), LLM, MBA, SJD
Legal Consolidated Barristers and Solicitors
National Australian law firm
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