Does shareholder of corporate trustee matter?

[ilovemalteser]

Hi guys,

I am setting up a trust and a company used as trustee(online,much cheaper than using agent)


Just wondering, does it matter who is the shareholder of the company? If I use A and B as shareholder, what happens if A died? Can I change shareholder of the company at a later stage?

 

[Terry_w]

Hi guys,

I am setting up a trust and a company used as trustee(online,much cheaper than using agent)


Just wondering, does it matter who is the shareholder of the company? If I use A and B as shareholder, what happens if A died? Can I change shareholder of the company at a later stage?

If you dont know the answer to that then you are very game setting up a trust yourself.

Tomorrow remind me and I will link you to a case where an individual stuffed up 67 trusts he set up on his own. They were all invalid.

 

[Paul@PFI]

Trust setup

Terry - Spot on.

Trust establishment shouldn't EVER be done online or given cursory thought. Get it wrong and it could bite. Hard. I'm an accountant and will be sued if its wrong. I rely on the best to do this and always do this with a law firm. Its a bit like DIY wills Sure the post office sell them. Would you want to rely on Aust Post $20 paperwork that you did ?

Wonder what the trust deed wording is like ?? Why do I say this ?? I have seen some shocking clauses in deeds sold online. One major company selling a "fixed unit trust" had clauses which looked like a hybrid discretionary trust. Even OSR NSW said its wasnt a unit trust and NOT a fixed trust. Some allow a oral resolution to vary a trust deed. Thats justs stupid and causes massive issues later when your bank looks at a finance issue. They will insist on their expensive lawyers to fix the problem.

Wondered why it was cheaper online? Who wrote the deed ? Are they a tax expert or a solicitor using a 30 year old documnet they found online too. I have seen lots of examples
- Like SMSfs that allows forfeited benefits, refusal of death benefits etc
- What are the voting rules in the company ?
- Have you considered an invalid siganture? s127 Corprations Act...This is affected by "Secretaries. Can be important esp a sole Director co. Hope you understand the issue.
- Shareholders ?? Why do I never establish a company in NSW ? I always use Victoria.
- Why is issuing 6 shares to each shareholder sensible ?
- What does it cost to fix when a company name is misspelt ?

And DIY trusts sometimes need to think about merger...You dont know what merger is ?? It can kill a trust and trigger all sorts of issues.

 

[Terry_w]

Here is the link to the case I mentioned earlier:

Aston (Aust) Properties Pty Ltd & Ors v Commissioner of State Revenue (Taxation) [2012] VCAT 48
http://www.austlii.edu.au/au/cases/vic/VCAT/2012/48.html

There were 11 trustee companies representing 67 trusts. 12 other trustee companies were previously involved but these had been deregistered.

The man behind most of the companies was Nicholas Corcoris. He had qualifications in accounting and had worked for the ATO for 10 years. He set up his own trusts.

But, he did not do things properly. Only 1 of the trusts was found to be in existence.

 

[ilovemalteser]

Thx Terry.

But my question is what's shareholder of the corporate trustee to do with trust asset and tax benefit? Thank you

 

[alexlee]

Thx Terry.

But my question is what's shareholder of the corporate trustee to do with trust asset and tax benefit? Thank you

The trustee company owns the assets of the trust. The directors of the trustee company is the 'brain' of the trustee company and makes decisions for it. Shareholders can decide who the directors are. If the shareholder dies, the shares form part of the shareholder's estate.

There appointor can of course change the trustee, but there are infinite possibilities and potential for conflict. e.g. if a husband and wife are joint appointors and they become estranged or divorced.

Terry and Paul's point is that if you have to ask these questions, you have no business even considering setting up your own trust and company.

 

[ilovemalteser]

And thank you Paul, I understand most of the issues except voting and 6 shares per shareholder.

 

[ilovemalteser]

Hi Alex, thx for the post.

Does shareholders enjoy any tax benefits other than trust can distribute income to beneficiaries

 

[Terry_w]

Thx Terry.

But my question is what's shareholder of the corporate trustee to do with trust asset and tax benefit? Thank you

I was just trying to show you what can happen if you stuff things up. Huge tax consequences. This case just showed the land tax side of things...

 

[Terry_w]

And thank you Paul, I understand most of the issues except voting and 6 shares per shareholder.

What happens on death of a sole shareholder? = someone else controls the trust and it may not be what you intended.

More importantly is who will control the appointor position?

 

[D.T.]

What happens on death of a sole shareholder? = someone else controls the trust and it may not be what you intended.

More importantly is who will control the appointor position?

As a single person, i imagine the appointor, director and shareholder would be the same person (me). I wouldn't trust (lol) anyone else to be in those positions, so does that jeopardize the whole thing?

 

[Aaron_C]

Well when you're dead you're not going to really worry about that?

 

[Terry_w]

Under many trusts the next appointor will often become the legal personal representative of the deceased - ie the executor or the Administrator (if no will).

What if the Trustee Company or the public trustee becomes your executor? They will control the trust. They could sack the trustee and appoint their own trustee - this is what happened in NSWSC case of Smith.

You may name people as appointors, but they may refuse to act. I seen this happen recently too when the potential executor got cold feet when it came to the crunch.

 

[RPI]

As a single person, i imagine the appointor, director and shareholder would be the same person (me). I wouldn't trust (lol) anyone else to be in those positions, so does that jeopardize the whole thing?

It is when there is no corporate trustee that this becomes a problem. A trust is just a legal relationship between the trustee and the beneficiary. Hard to have a relationship with yourself, or at least one the court would recognise.

There is a school of thought that this could be argued out and found to be valid where you have secondary beneficiaries. Not one I would like to try though.

 

[alexlee]

As a single person, i imagine the appointor, director and shareholder would be the same person (me). I wouldn't trust (lol) anyone else to be in those positions, so does that jeopardize the whole thing?

One option is to make the named beneficiaries your parents instead of yourself. This way, there is the added option of distributing to your cousins, for example.

 

[Terry_w]

One option is to make the named beneficiaries your parents instead of yourself. This way, there is the added option of distributing to your cousins, for example.

Not always good for 3 reasons:

1. Social Security Act could result in trust assets and income to be parents for the purposes of calculating pensions or other payments.

2. People often want to renounce interests in trusts for these reasons and removing a primary beneficiary could result in a resettlement.

3. Lenders often want personal guarantees from all named adult beneficiaries in under the deed.

 

[ritchie77]

Doing some research myself on Corporate Trustees including shareholders so have found this thread (amongst others) helpful.

With regard to asset protection in particular, if the Trustee of the Trust was a coy would the investor (ie shareholders of the coy) then be protected in the event of an accident/fault/negligence at the actual property (ie OHS issue, accident, death etc in the event the insurance coy deemed the cover "invalid" ).

Does it matter who is the director of the coy and shareholders and will they be the same person? not necessarily I imagine.

I understand the Trust assets cannot be attacked with regard to a claim against the person (ie who is director/shareholder) however can a claim be brought against the person in their capacity as shareholder of the Corporate Trustee in the event of an accident/negligence? (hopefully this would never happen and if it did you would hope your agent covers you or insurance does however just thinking worst case here).

 

[Terry_w]

Doing some research myself on Corporate Trustees including shareholders so have found this thread (amongst others) helpful.

With regard to asset protection in particular, if the Trustee of the Trust was a coy would the investor (ie shareholders of the coy) then be protected in the event of an accident/fault/negligence at the actual property (ie OHS issue, accident, death etc in the event the insurance coy deemed the cover "invalid" ).

Does it matter who is the director of the coy and shareholders and will they be the same person? not necessarily I imagine.

I understand the Trust assets cannot be attacked with regard to a claim against the person (ie who is director/shareholder) however can a claim be brought against the person in their capacity as shareholder of the Corporate Trustee in the event of an accident/negligence? (hopefully this would never happen and if it did you would hope your agent covers you or insurance does however just thinking worst case here).

Shareholders just own shares, the generally cannot be sued in relation to a company. However if they have performed some work or done something at a property owned by the trustee then they could be negligent in some way and sued for that.

Same with directors, however directors could be sued in other ways as well. Directors can be personally held liable under a number of acts, OHS, Australian Consumer Law, etc etc.

So it does matter who a director is. Directors can go down with the company (rare but possible). It is also the director that controls the company which is the trustee so for control reasons you would want to control the trust - look at the current high profit case in the Supreme Court, Rinehart.

And it does matter who the shareholders are as they control who the director is.

Imagine you set up a trust with your wife as sold shareholder. She dies, the shares go to her sister who then sacks you as director puts herself in and then, as controller of the trust, distributes all the trust assets to herself.

Even though you may be appointor, this could all happen in the blink of an eye!

 

[Terry_w]

I understand the Trust assets cannot be attacked with regard to a claim against the person (ie who is director/shareholder)

I can think of several ways trust assets can be attacked...All depends on the structure, how it is set up and the circumstances.

 

[ritchie77]

So are there circumstances where you either appoint a coy or another trust as the shareholders of the Trustee Coy to add the extra level of protection in the event of fault/negligence at the property in question. Or does the level of blame always follow through (ie if a Trust were the only shareholder of a Trustee Coy then the Trustee of that coy (whether personal or coy shareholders) would be responsible.