Company as Trustee of Family Trust – Why have a family trust corporate trustee company?
Company as trustee of a Family Trust
Company as trustee for a Family Trust- family trust corporate trustee company
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
Family trust corporate trustee company v’s trading in its own right
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.
Do family trust corporate trustee company get an ABN, TFN and open a bank account?
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.
- If another law firm prepared your corporate trustee company, then check with them.
- Or, update your corporate company’s Constitution here.
Why have a company as trustee of your Family Trust?
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.
Build a corporate trustee company first. And then build the Family Trust.
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:
- Build the family trust corporate trustee company first.
- The sole director is the person of straw (has no assets in their name).
- The sole director holds one share worth $1.00 ‘as trustee’ for the ‘yet to be built’ Family Trust. Or, if you have a spouse, then the Director holds no share, instead, the Spouse is the one and only Shareholder and holds one share worth $1.00.
- Once incorporated:
- your company name is now confirmed and owned by you;
- you get your own Australian Company Number (ACN).
- Armed with the company name and ACN you build the Family Trust Deed.
- Now build the Family Trust Deed on our website https://www.legalconsolidated.com.au/family-discretionary-trust-intro/
- The Trustee of the Family Trust is your new company.
- The Appointor of your family trust is you and your spouse. Your children are your Backup Appointors. But, if you have no children then your spouse is the Appointor and you are the Back-up Appointor. But, if you have no spouse then you are the Appointor and your mum is the Back-up Appointor. (But be careful if your Mum is on Centrelink.)
- Your Family Trust registers with the ATO an ABN and Tax File Number (TFN). They are free. Our covering letter that comes with the Family Trust Deed tells you how to do this. Your family trust corporate trustee company(while owning the assets as trustee) does not trade, therefore, your company does not require a TFN or ABN. The family trust corporate trustee company does not file tax returns as it does not trade in its own right.
How to build a new company to be trustee of an existing Family Trust
The company you are building is also designed to operate as a corporate trustee of an existing Family Trust.
For example:
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:
- Build the family trust corporate trustee company first.
- Build a new company. John is the director. But, he owns no shares. Instead, his wife (woman of substance) owns 10 shares of $1.00 each.
- Once Legal Consolidated emails the Certificate of Incorporation for the company John now starts to update his Family Trust deed.
- Now update the Family Trust deed here: Family Trust Update – Appointor, Trustee & Deed Update (legalconsolidated.com.au)
- The Outgoing Trustee is John. And the New Trustee if John’s new company.
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.
Who owns the shares of a family trust corporate trustee company?
Since the family trust corporate trustee company:
- has no assets (other than the $1.00 paid-up capital); and
- can be sacked by the Appointor of the Family Trust anytime
it is usually not that important as to who owns the shares in the corporate trustee.
Traditionally for a family trust corporate trustee company:
- if you have a ‘safe’ spouse (not involved with the business) then your spouse owns the $1.00 share (in that case the director – the sole director – is not a shareholder).
- Don’t have a spouse or your spouse is also a high risk (e.g. you are both medical doctors or both contractors, rather than just an employee)? Then you (as the director) hold the one $1.00 share in trust for your (yet to be formed) family trust.
Can the Director of the Corporate Trustee also be an Appointor and Beneficiary of the Family Trust?
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:
- Trustee – this is the company you are about to build
- Appointor – this is god. The Appointor hires and fires the Trustee
- Beneficiaries – there are about 400,000 beneficiaries in a family trust
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.
Our trustee company and constitution comply as a:
- trustee of a family trust, unit trust and bare trust
- trustee of Self-Managed Superannuation Fund
- crowd-sourced funding vehicle
- entity to operate a business in the company’s own right
Restricting trustee company name
As you build the trustee company, check if your preferred company name is available.
However, ASIC prohibits in your corporate trustee company name:
- ‘bank’
- ‘trust’
- ‘royal’
- ‘incorporated’
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.
Corporate Trustee abbreviations in Pty Ltd for a company as trustee of a family trust
ASIC allows these abbreviations in a corporate trustee:
- and: &
- Australian Business Number: ABN
- Company: Co, Coy
- Proprietary: Pty
- Australian: Aust
- Proprietary Limited: Pty Ltd
Constitution vs replaceable rules
Corporate trustees as trustee for a family trust are governed by:
- a constitution (recommended), or
- replaceable rules (dangerous and not recommended)
‘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.
Our Corporate Trustee Company Constitution contains:
- Cutting edge pre-emptive rights. Professor Bett Davies’ Doctorate was on business succession planning
- tag along requirement’ forcing minority shareholders to also sell their shares together with majority shareholders
- accountant friendly, GAAP compliant valuation powers
- profit distributions, even when there is no ‘profit’ for ATO purposes
- over 30 different classes of shares
- allowing Directors and shareholders to use Skype and other online facilities
- built-in Division 7A Loan Deeds
Can my corporate trustee do other jobs?
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:
- beneficiary (bucket company) of a family trust – but this is not recommended because a corporate trustee carries risk
- corporate trustee of a unit trust – but not recommended because of asset protection issues
- corporate trustee of Self-Managed Superannuation Fund – but not recommended as it is better to have a special purpose company
- corporate trustee of a Custodian Bare trust when an SMSF borrows money
- bare trustee: Acknowledgement of Trust – ‘AFTER the Trustee buys’
- bare trustee: Declaration of Trust BEFORE you buy – ‘secretly buy’
- bare trustee: Bare Trust Deed – ‘hide assets you own’
- crowd-sourced funding vehicle
- vehicle to operate a business in its own right (rather than through a trust) – but not recommended as it breaches best practice for asset protection
Use the corporate trustee company for just one purpose
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.
Save money having the Pty Ltd carry out many jobs?
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.
Company as trustee of a Service Trust
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.
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Directors of the Trustee company for the Service Trust?
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.
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Shareholders of the Trustee company for the service trust?
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.
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Are the Directors of the medical company also beneficiaries of the Service Trust
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.
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Is the medical company one of the Beneficiaries of the Service Trust?
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.
Why use Legal Consolidated to build a family trust corporate trustee company?
The 7 advantages of using Legal Consolidated Barristers & Solicitors to build a family trust corporate trustee company:
- if family trust corporate trustee company name is unavailable or challenged by ASIC? We contact you via telephone and help you find one that is available
- you receive a secure, personalised email containing
- Certificate of Incorporation
- Company Constitution for a family trust corporate trustee company
- All minutes
- Letter on our law firm’s letterhead
- our hints and training videos guide you. The law firm is available 24/7 via telephone for legal advice on how to build your document
- a constitution is a deed. Only a law firm legally prepare deeds.
See also
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
National: 1800 141 612
Mobile: 0477 796 959
Email: [email protected]