Corporate Trustee vs Individual Trustee: Asset Protection for SMEs

The Role of the Trustee

A trustee has fiduciary duties to manage trust property and ensure legal compliance. Whether you choose an individual trustee or a corporate trustee, the trustee must act in the best interests of the beneficiaries and follow the rules set out in the trust deed.

The Risks of Individual Trustees

Individual trustees are usually business owners, spouses, or close family members. While this might seem simple, it comes with risks. An individual trustee is personally liable for the trust’s obligations. This means if the trust faces legal action or cannot pay its debts, the individual trustee’s personal assets—such as your family home or savings—could be at risk.

This personal liability is a major concern for many business owners. When the lines between personal and trust assets are blurred, it can be difficult to protect your personal wealth. If an individual trustee passes away or becomes unable to act, appointing a new trustee can be complicated and may involve transferring ownership of trust assets, potentially putting your family at further risk.

The Benefits of Corporate Trustees

A corporate trustee is a separate legal entity, usually a proprietary limited company, set up specifically to act as the trustee of your trust. This company holds the trust’s assets and makes decisions on behalf of the beneficiaries.

Because a corporate trustee is a legal entity in its own right, it provides a clear separation between the trust’s assets and your personal assets. This separation is essential for asset protection. If the trust faces legal action or financial trouble, only the trust assets are at risk—not your personal assets.

Corporate trustees also offer simplified succession planning. Unlike a person, a company never dies or becomes incapacitated. If you want to change directors or shareholders, you can do so without affecting the trust’s ownership of its assets. This makes it easier to manage your trust over the long term, especially if you want to pass it on to family members.

Professional Image and Trust Management

Using a corporate trustee can also give your business a more professional image. Banks, suppliers, and other business partners often see a company acting as trustee as more stable and reliable. This can be helpful when you need to borrow money or enter into agreements on behalf of your trust.

Making the Right Choice for Your SME

Choosing the right trustee structure is about more than just asset protection. It’s also about planning for the future and making sure your trust is managed effectively.

Corporate Trustee Structure: Greater Protection

A corporate trustee structure offers greater asset protection because it creates a clear separation between you and the trust’s obligations. The company remains as trustee, and only the trust assets are at risk if something goes wrong. This is especially important for family trusts and self-managed super funds, where protecting your personal assets is a top priority.

A corporate trustee company must have at least one director, and often, the beneficiaries are also the shareholders. This setup allows you to keep control while limiting your personal liability.

Individual Trustee: Lower Costs, Higher Risk

An individual trustee structure is simpler and often has lower costs. You don’t need to set up a new company or worry about ongoing costs like annual fees for a corporate entity. However, the risks are higher because you are personally liable for the trust’s obligations.

For small businesses or single member funds, an individual trustee might seem attractive because of the lower costs. But you should weigh these savings against the potential risks to your personal assets.

Ongoing Costs and Legal Compliance

A corporate trustee does involve ongoing costs, such as annual fees to the Australian Securities and Investments Commission (ASIC) and the cost of preparing trust tax returns. You may also need to pay for professional advice to ensure your trust remains legally compliant.

However, these costs are often outweighed by the benefits of greater protection and simplified succession planning. For most SMEs, the peace of mind that comes with a corporate trustee structure is worth the extra expense.

Succession Planning and Long-Term Benefits

One of the biggest advantages of a corporate trustee is simplified succession planning. If you want to pass your business or trust to family members, a company acting as trustee makes the process much smoother. You can change directors or shareholders without needing to transfer ownership of the trust’s assets.

This is especially important for family trusts, where you want to ensure your assets are protected and managed for the benefit of future generations.

Professional Advice and Expert Teams

Choosing the right trustee structure is not always straightforward. Every business is different, and your specific circumstances will influence the best choice for you. That’s why it’s important to seek professional advice from an expert team who understands trust law and can guide you through the process.

An expert team can help you set up the right trustee structure, prepare your trust deed, and ensure your trust is managed effectively. They can also help you with legal compliance, trust management, and ongoing support.

Practical Steps to Protect Your Assets

To protect your personal assets and ensure your trust is managed well, here are some practical steps you can take:

• Choose the right trustee structure: Consider whether a corporate trustee or an individual trustee is best for your business and your family.

• Keep personal and trust assets separate: Make sure there is a clear separation between your personal assets and the trust’s assets.

• Plan for succession: Think about who will take over if you are no longer able to manage the trust.

• Seek professional advice: Work with an expert team to ensure your trust is set up and managed correctly.

• Stay legally compliant: Make sure your trust complies with all relevant laws and regulations.

Securing Your Future with the Right Trustee Structure

Choosing between a corporate trustee and an individual trustee is a key decision for any business owner. The right trustee structure can provide greater asset protection, simplified succession planning, and peace of mind for you and your family.

A corporate trustee offers a clear separation between your personal assets and the trust’s assets, helping to protect what you’ve worked hard to build. While there are ongoing costs, the benefits of greater protection and long-term planning often make it the best choice for most SMEs.

If you’re unsure which trustee structure is right for you, don’t hesitate to reach out for professional advice. Your expert team at ACT Tax Group is here to help you make the best decision for your business and your family. Take the next step to protect your assets and secure your future.