Corporate vs individual trustee: which should you choose?
When establishing a trust, one of the most important decisions is whether to appoint an individual or a company as trustee. While both are legally permissible, a corporate trustee is recommended in almost all circumstances for family trusts and SMSFs.
A corporate trustee provides limited liability. If the trust incurs debts or liabilities (for example, through a property investment or business activity), the trustee is personally liable. If the trustee is an individual, their personal assets, home, savings, other investments, are at risk. If the trustee is a company, liability is limited to the assets of the trustee company, which typically holds no assets other than its role as trustee. This protection is not absolute. Under section 197 of the Corporations Act, directors can be personally liable for trust debts the company cannot pay if it is not entitled to be indemnified from trust assets, for example because of a breach of trust, and lenders often require directors to give personal guarantees.
Continuity is the second major advantage. If an individual trustee dies or becomes incapacitated, the trust can be disrupted. A new trustee must be appointed, assets must be transferred, and government agencies must be notified. With a corporate trustee, the directors of the company can change without affecting the trust itself. The company continues as trustee regardless of changes to its directors.
A corporate trustee also provides clearer separation of assets. Trust assets held in the name of a corporate trustee are clearly distinguishable from the personal assets of the individuals involved. This simplifies administration, reduces the risk of asset mixing, and makes it easier to demonstrate to financiers and other parties that assets are held on trust.
The additional cost of establishing a corporate trustee is modest. At CoSec Partners, a Pty Ltd company for use as a trustee can be registered for $834. The company is registered with ASIC as a standard proprietary company and pays the standard annual review fee. Only a company whose sole purpose is to act as trustee of a regulated superannuation fund (an SMSF) can be registered as a special purpose company with the reduced fee. When combined with the trust deed, the total cost of a properly structured trust with a corporate trustee is $1,098 including GST and ASIC fees.
Frequently asked questions
Can I change from individual trustees to a corporate trustee later?
Yes, and many trusts do. The change follows the process in the deed, usually a resolution of the appointor plus retirement and appointment deeds, and every trust asset must then be re-registered into the company’s name. That re-registration is the reason it is cheaper to start with a corporate trustee than to convert later.
Does a corporate trustee need to do anything else each year?
It is a company, so it has its own ASIC obligations: keeping details current, paying the annual review fee, and passing a solvency resolution where required. A company whose sole purpose is to act as trustee of a regulated superannuation fund qualifies for the reduced special purpose company review fee; a family or unit trust trustee does not.
Who should be the directors of a corporate trustee?
For a family trust, usually the individuals who would otherwise have been the individual trustees, which keeps control where it was intended. For an SMSF corporate trustee the answer is prescribed: every member must be a director and every director must be a member, subject to exceptions in section 17A of the SIS Act for single-member funds and for legal personal representatives, attorneys and parents or guardians acting for a member.
This article is general information only and does not constitute legal, financial, or tax advice. While we endeavour to keep content accurate and current, laws and regulations change frequently. For advice specific to your circumstances, please consult a qualified professional adviser. CoSec Partners Pty Ltd accepts no liability for actions taken based on this content.