A trust is a relationship where a trustee, either an individual or a company carries on business for the beneficiaries. A trust may be discretionary. What this means is that the trustee decides how profit will be distributed among beneficiaries.
Alternatively, it may have fixed interests which means it will benefit certain people in predetermined proportions. Therefore, to determine whether you should appoint a corporate trustee for a discretionary trust (often referred to as a family trust when the beneficiaries are linked via family relationships), it is important to understand how a corporate trustee can assist with asset protection.
Corporate Trustee for Asset Protection
One of the key objectives in the succession planning process is to protect assets, shielding them from claims on death, divorce and debt.
Using a corporate trustee can assist with asset protection by limiting the trustee’s liability to the corporate entity. Generally, corporate trustees have negligible assets. Unlike an individual, a corporate trustee can exist indefinitely. The corporate trustee can be controlled by shareholders appointing directors. Legal ownership of the trust assets will not change with the directors and shareholders. Problems can arise if a bankrupt person owns shares in the corporate trustee. If an at-risk person is to own shares in a corporate trustee, they should only own a minimal amount.
Strategies and Steps to Asset Protection
There are several steps that could be implemented when considering strategies for asset protection:
- Consider the assets you wish to protect;
- Consider who owns the assets you wish to protect;
- Who controls the assets that are at risk (trust assets);
- Decide who will hold the important roles in the trust such as trustee, appointor, e.t.c.
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Please note that this article does not constitute legal advice and Straits Lawyers will not be legally responsible for any actions you take based on this article.