When establishing a discretionary trust, one of the key decisions you'll need to make is whether to appoint an individual or corporate trustee. The choice between these options has significant implications for how your trust is managed, how well your trust assets are protected, and the extent of personal liability involved. Whether you’re prioritising asset protection, considering future succession planning, or balancing fiduciary duties, it's important to take into consideration the differences between these trustee structures when choosing how to set up your discretionary trust.

This article compares the roles of corporate trustees and individual trustees, highlighting how each impacts trust administration, investment management, and the protection of trust assets. We’ll explore the legal responsibilities, potential risks, and the suitability of each option for various trust planning scenarios. By examining these factors, you'll gain insights into which trustee structure aligns best with your specific situation, ensuring your trust operates effectively to serve the interests of your beneficiaries.

If you’re unsure whether an individual or corporate trustee is better for your trust, Causbrooks can provide specific investment advice tailored to your unique needs. Schedule a consultation with us today.

What does a discretionary trust involve?

A discretionary trust is a flexible estate planning tool where the trustee has the authority to determine how the trust’s income or assets are distributed among the beneficiaries. This type of trust offers significant flexibility in managing and distributing assets, making it a popular choice for those looking to provide for family members or manage investments.

When setting up a discretionary trust, one of the most important decisions is choosing the right trustee structure. You can appoint either a corporate trustee or an individual trustee. A corporate trustee, which acts as a separate legal entity, offers the advantage of limited liability. This means that the company, rather than the individuals involved, is legally responsible for the trust's obligations, thus protecting the personal assets of the trustees. On the other hand, an individual trustee may face personal liability for any debts or legal issues arising from the trust, potentially putting their personal assets at risk.

Comparing corporate trustee vs individual trustee

Choosing between an individual or corporate entity as your trustee is important as their are benefits and disadvantages with both, and your choice will ultimately come down to your situation. Individual trustees offer lower costs and simpler setup, but come with personal liability and complex succession planning. In contrast, a corporate trustee provides better asset protection, limited liability, and easier succession, making it ideal for more complex trusts. Carefully assess your trust's needs and the interests of your trust beneficiaries to determine the right trustee structure.

Individual trustees

An individual trustee is tasked with managing the trust’s assets in accordance with the trust deed. This option is often chosen due to its lower establishment costs and the relatively simple process of appointing a trustee, typically requiring only the signing of the trust deed.

However, there are several key challenges associated with individual trustees:

Personal liability

An individual trustee is personally liable for any legal issues or debts related to the trust. This means that if the trust faces legal action or financial obligations, the trustee’s personal assets may be at risk to cover these liabilities.

Difficulty separating assets

Distinguishing between an individual trustee’s personal assets and trust assets can be problematic, as both are held in the trustee’s name. This lack of clear separation can lead to complications, especially in situations such as bankruptcy or legal disputes.

Complex succession planning

When an individual trustee passes away, transferring the trust’s assets to a new trustee can be a complex and time-consuming process. This is particularly true for assets like shares and real estate, which require extensive administrative work, complicating the overall succession plan.

Corporate trustees

A corporate trustee, also referred to as a company trustee, is a business entity created specifically to manage the assets of a trust. This type of trustee operates independently from its directors and shareholders, ensuring a clear separation between personal and trust assets.

The advantages of appointing a corporate trustee include:

Limited liability

Directors and shareholders of the corporate trustee are generally shielded from personal liability for the trust’s debts or legal issues. This provides significant protection in the event of a legal dispute, as their personal assets are aren't at risk.

Simplified succession

Since a corporate trustee is a company, it doesn’t face the issues of death or incapacity that an individual trustee might. The company remains in existence regardless of changes in directors, allowing for seamless trust management without the need to transfer assets to a new trustee.

Greater asset protection

With a corporate trustee, there is a clear distinction between personal and trust assets. This separation enhances asset protection, ensuring that if a director faces personal legal issues, the trust's assets remain secure.

Separation of assets

The corporate trustee holds trust assets in the company’s name, making it easier to demonstrate the separation of personal and trust assets. This clear distinction helps in complying with legal regulations and prevents the accidental mingling of assets, which could otherwise lead to complications.

Deciding between a corporate trustee and an individual trustee

Pros of using an individual trustee

If cost is a major concern, selecting an individual trustee can be more affordable since the setup and ongoing costs are minimal compared to a corporate trustee, which involves incorporating a company and paying annual review fees. For straightforward trusts with limited assets or beneficiaries, the simplicity of an individual trustee structure may be sufficient. Additionally, if the trust’s activities are low-risk and the likelihood of legal disputes is minimal, appointing an individual trustee can effectively manage the trust without exposing your personal assets to unnecessary liability.

Pros of using a corporate trustee

When asset protection is a priority, a corporate trustee provides better safeguards by acting as a separate legal entity, which limits personal liability and protects your personal assets from the trust’s debts or legal actions. Corporate trustees offer greater asset protection and ensure the trust’s assets remain distinct from personal or corporate assets. They are ideal for complex succession planning needs, as a trustee company continues to exist regardless of changes in directors or shareholders, simplifying the management of trust assets over generations. Additionally, corporate trustees enhance legal compliance and maintain a clear separation of assets, which is crucial for avoiding bankruptcy risks and ensuring long-term benefits for beneficiaries.

Key considerations when choosing your trustee

Selecting the right trustee structure is essential to ensure your trust is managed effectively and aligns with your specific circumstances and goals. If you prioritise low upfront establishment costs and straightforward trust administration, an individual trustee might be well-suited to your needs. This option offers lower initial costs and simpler management, particularly for trusts with limited assets or fewer beneficiaries.

However, if you seek limited liability, robust asset protection, and simplified succession planning, a corporate trustee is likely the better choice. As a separate legal entity, a corporate trustee provides greater protection for your personal assets by clearly separating them from the trust’s assets. This structure also ensures continuity in trust management, even with changes in directors or shareholders, making it ideal for complex estate plans and long-term trust planning.

When making your decision, consider key factors such as trustee liability, ongoing fees, the complexity of your trust deed, and the long-term interests of your beneficiaries. Assessing these aspects will help you choose the trustee structure—whether individual or corporate—that best supports your trust’s assets, fiduciary duties, and overall objectives.

Next Steps

Both individual and corporate trustees offer distinct advantages, and the right choice depends on the specific goals and circumstances of your trust. If your priorities include greater asset protection, simplified succession planning, and limited liability, a corporate trustee, as a corporate entity, is typically the better option. However, for trusts with minimal risk, fewer assets, or where cost is a significant concern, appointing a trusted family member as an individual trustee may be sufficient to meet your needs.

If you’re uncertain about which trustee structure is best for your discretionary trust, we’re here to help. Contact us to schedule a consultation, and we’ll guide you through the decision-making process to ensure your trust is structured for long-term success.

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Disclaimer

Any advice contained in this document is general advice only and does not take into consideration the reader’s personal circumstances. Any reference to the reader’s actual circumstances is coincidental. To avoid making a decision not appropriate to you, the content should not be relied upon or act as a substitute for receiving financial advice suitable to your circumstances.

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