Corporate Trust:
A Corporate Trust is a legal arrangement that allows a trustee to manage a company’s assets. This trust is similar to that of an individual trust, however it revolves more around the company’s structure. Directors of the company can become members of the corporate trust. With a corporate trust, it is relatively easy to remove or add a director as a member of the trust without affecting the trust.
Corporate Trustee:
A corporate trust requires a trustee to manage its assets and information, and the company itself can become the trustee. The corporate trustee is responsible for looking after a company’s affairs. The corporate trustee must have a shareholder/s and can appoint director/s to become the members of the trust in order to help manage the trust and the distribution of assets to beneficiaries. The trustee has an obligation to act in the best interests of the company in accordance with the terms of the trust.
Why set it up?
Corporate trusts are effective as it allows a company to protect their assets from creditors as they are placed under a trust, as well as being an effective tool for investment and taxation purposes. It allows the trustee to effectively manage the assets, control how the assets are distributed and explicitly states who the beneficiaries of the trust. A company and its trustee can exercise complete control over how the trust is run.
What are the benefits?
There are several benefits that come into play when creating a corporate trust. The main advantages are asset protection and limited liability.
- A corporate trustee limits the trustee’s liability to corporate assets (as they are trust assets rather than the trustee’s personal assets).
- Limited liability applies because the company is a separate legal entity. Having a corporate trust makes it easier to differentiate personal assets and corporate assets because the company is a separate entity.
- When a director dies, the trust continues to exist
- Tax benefits also apply as the corporate trust gets taxed at a lower trust rate rather than the regular tax rate.
Are there any disadvantages?
It can be noted that establishing a corporate trust may include an increase in the setup and management costs associated with incorporating a company. Director fees may also apply. Despite this, implementing a corporate trust is beneficial for a company so that the company assets are well protected and managed from liability and reduces tax implications.
Use of a Trust Company:
A Trust Company is a separate corporate entity that can be owned by a bank, financial institution, law firm or independent partnership and they act in a fiduciary capacity to assist in managing trusts for businesses and other entities. Trust companies perform a wide variety of investment and asset management services. They save companies time and money as the trust company can be conveniently set in one location, as well as saving companies from having to coordinate financial assets and other information between brokers, financial planners, tax advisors, etc. A Trust Company is obliged to act in the best interests of their clients.
If you have any questions or would like to enquire more about corporate trusts, please do not hesitate to contact us.
This is not legal advice.
