When setting up a family trust, commonly referred to as a discretionary trust, the selection of a trustee arrangement is crucial. You have two primary choices:
- Individual trustee(s)
- Corporate trustee
Individual trustees are one or more persons who act on behalf of the family trust, holding assets for the beneficiaries' benefit. In this capacity, every trustee has the duty to effectively manage the trust and ensure its compliance.
Opting for individual trustees offers the advantage of simplicity and affordability during the trust's establishment. However, challenges may arise in distinguishing personal assets from the family trust's assets. This can lead to tax complications and challenges in asset distribution during significant events such as death or bankruptcy.
On the other hand, a corporate trustee is a company (typically Pty Ltd) formed mainly to act as the trustee for the discretionary trust. The trustee company's operations are overseen by its directors, who make decisions about distributions and other key matters.
It's advisable to set up the corporate trustee company concurrently with the trust, ensuring it hasn't operated previously or separately. While not a strict legal mandate, this approach helps avoid potential accounting issues.
The perks of employing a corporate trustee encompass limiting individual liability since the company operates as a separate legal entity. However, it's vital to understand that the liability is "limited." Directors must still adhere to their duty of care and can face repercussions for negligence. Generally, they aren't directly accountable for arising legal concerns. A key benefit of the corporate trustee model is the clear separation between personal and company assets, safeguarding personal assets from potential risks.
Nevertheless, some drawbacks of the corporate trustee approach include the costs associated with maintaining ASIC records and the initial setup fee, which is $686 when facilitated through Perth Legal Docs.