The use of Family Trusts has been around for a long time; hundreds of years in fact.  However, the use of a Corporate Trustee is fairly new.  I will not claim to have thought of the idea, but I am a big fan of the Corporate Trustee model.

The concept of Family Trusts is simple:  You want to get rid of assets, to own less.  You do this by selling the assets to someone else; however, you want to retain some control over them.  A Family Trust allows the ownership of your valuable assets to be in someone else's name while you still have the use of them.

However, the Family Trust must be seen to be a separate entity and not an alter ego of you.  There must be a separation of control.  Usually an Independent Trustee is included as one of the Trustees, and this will often be the Settlors Lawyer or Accountant.  You set up the Trust; you are putting assets into the Trust; you are the Settlors.  Having an Independent Trustee helps avoid any suggestion that the Settlors continue to have control of the Trust assets, in which case Inland Revenue may argue that the Trust is a "sham" or an alter ego of you and therefore invalid.  The IRD would ignore the Family Trust and treat the assets and income of the Trust as your own.  This defeats the purpose of the Trust creation.

Trustee decisions must be unanimous, unless the Trust Deed allows for majority decisions.  Trustees must ensure that proper records are kept of their decisions.  The Trust has a lifetime of 80 years.  The usual practice was to have three Trustees named on the Trust Deed.  The Trustees are the people (or entity) that appears on the Title Deed of property and on the loan documents.  If a Trustee was to change for whatever reasons, then new documentation and legal fees are required to effect the change.  I believe that this is inefficient.

As a trusted business advisor, I am often asked to act as an Independent Trustee.  I have many years experience in governance roles and hold a number of Director and Trustee positions.  The use of a Corporate Trustee model also prudently manages my Trustee positions.

In general, the main duties of Trustees are:

·           To act in the best interests of the beneficiaries of the Trust.

·           To act in an even-handed manner between beneficiaries, and between groups of beneficiaries.

·       Not to use knowledge or influence gained as a result of being a Trustee to advance the Trustees   own  position           (except when the Trustee discloses his or her personal interest to the Settlor of the Trust and obtains the Settlors informed consent).

·           To act personally rather than delegating decisions to others (except if the Trust document explicitly permits delegation).

·           To act honestly and with the level of skill and care that would be expected of the reasonable businessperson in administering the affairs of others.

·           To be thoroughly familiar with the terms of the Trust in the Trust Deed (the main Trust document), and with who the possible beneficiaries may be and what the assets and liabilities of the Trust are.

So how does a Corporate Trustee work?   A Corporate Trustee is a Company and as such, normal Company rules apply.   The Directors are the day-to-day managers.  However, the Shareholder has the power of appointment of the Directors and must approve major transactions.  This is the independence necessary to prove independence.   The liability for negligent actions rests with the Directors of the Company.

Some Banks and Finance Companies do not understand Corporate Trustees and Family Trusts.  They do not “get” the idea that a Family Trust is not a separate legal entity like a Company.   A Family Trust is the name of the collective bosses of the Trust; namely the Trustees.

The owner of the assets of the Family Trust is the Trustee, who holds the assets for the benefit of the beneficiaries.  Therefore, the beneficiaries are the most important people as they are the beneficial owner of the assets held in Trust.  This is the most important concept.

The legal owner of the assets; the Trustee who holds the assets on trust for the beneficiaries (which in this case is the Corporate Trustee), should be the name listed as the owner.  Nevertheless, the Bank will often want the Family Trust name as the owner so it fits into their understanding. The Bank will operate the account based on the signatures mandated to operate the account.  Using the collective name will be fine.

The holder of the Power of Appointment of the Trustees is where the ultimate power lies.  In the Trust Deed, the person(s) who hold the power of appointment shall be named here. This position can hire and fire the Trustees.  It is important to understand your Trust Deed and what you can and cannot do; especially with the ultimate power of appointment.

The use of a Corporate Trustee is forward thinking; and is a more robust structure, which I thoroughly recommend.