corporate trustee?

[MatthewCH7V7]

what are the tax requirments for a corporate trustee company for your trading trust? if you have not been trading in you laqc or trading trust do you have to file and end of year return?

[Green Fish]

A company can be the trustee, or a trustee, of a trust. There are no particular tax issues that I am aware of. The company is treated in the same way as a human trustee.

To simplify matters, it would be best to incorporate a new company that only has one function in life, that being to act as the trustee of the trust. If this is done, everything done by the company is something done by the trust, and everything owned by the company is something owned by the trust. There is no need for separate accounts for the company. (Note that the taxpaying entity is the trust, not the company.)

You can be a director of the trustee company. Ownership of the shares can be a bit tricky. Ideally, the majority of the shares should be held by someone other than yourself, but you then lose control. (You are supposed to lose control, but some people don't like to.)

[Ivanhoe]

Declare it an inactive company. Also do minutes that will explicitly state that it's only function to be a trustee and that it cannot do any business rather than acting as a trustee.

[Green Fish]

You're also able to do a similar thing at the time you incorporate the company. The difference with that method is that the restriction goes on the public record, so everyone dealing with the company has notice of its capacity. This could be reinforced when choosing the name, eg, "Trustee of The Bloggs Family Trust Limited".

[Green Fish]

Retaining a bit of control

Assuming that the trust already exists, there should be a Deed of Trust floating around. Many of the standard-form deeds give the settlor (ie, you) the power to appoint new trustees.

If you incorporate the trustee company and don't give yourself a majority shareholding (which is the recommended course), your concern will be that the kids will turn on you one day, sack you as a director, and appoint themselves as directors - which they are entitled to do.

However, you still have the power to appoint new trustees, so you could appoint two additional trustees, who can then outvote the other trustee (ie, the company).

[Perry]

Huh?

If the sole trustee of a Trust is a trustee
company of which the 'settlors' are the
directors, with an independent director
attached, (such as an accountant or
lawyer), where/how do the beneficiaries
(the kids) get into the act?

[Green Fish]

The trustee company has to have shareholders. You could have the settlor holding the majority of the shares, but it might be said that the disposition to the trust has too many strings attached, in that the settlor retains full control of the trust's assets. To avoid this suggestion, the shares can be held by the beneficiaries under the trust (eg, the kids). But if the kids have the shares, then they have ultimate control over the trustee company, and they can sack all the directors of it by a majority resolution.

PS - Why would you want to have an independent director? The whole point of using a trustee company is to avoid the hassle and expense of having to see a lawyer or accountant everytime something has to be done.

[Perry]

I demur on several points.
(I'm treating the directors as the shareholders in these comments)

The trustee company has to have shareholders. You could have the settlor holding the majority of the shares, but it might be said that the disposition to the trust has too many strings attached, in that the settlor retains full control of the trust's assets.

1) I did not say that the settlor was a majority shareholder.

2) Any discretionary or final beneficiary who contributes
capital to the Trust becomes a de facto settlor, albeit
not the founding settlor.

To avoid this suggestion, the shares can be held by the beneficiaries under the trust (eg, the kids). But if the kids have the shares, then they have ultimate control over the trustee company, and they can sack all the directors of it by a majority resolution.

1) Having the final beneficiaries' children as trustees or
directors is bad, bad, bad.

also

2) If there was one child and two parent-director/trustees,
plus an independent director of the parent-director/trustees
choosing, there is no problem such as you foresee.

Why would you want to have an independent director? The whole point of using a trustee company is to avoid the hassle and expense of having to see a lawyer or accountant every time something has to be done.

1) GF, that is just so wrong in places. One major reason
for having a trustee company is to facilitate changes
of trustees/directors, without the need for title changes.

2) If a majority is required for Trustee/director determinations,
ma & pa trustee/directors will not need to do what you describe.

Perhaps you've been badly advised/informed?

[Green Fish]

I think that our disagreement lies in your smallprint: Why are you lumping directors and shareholders together? They are very different things. A director is an officer of the company, engaged to run it. A shareholder is an owner of the company.

My suggestion was not to make the children directors of the trustee company. My suggestion was to make them shareholders of the trustee company. So they don't run the company, but they have the ultimate control.

I take your point about facilitating title changes etc., but that still doesn't explain why you're continuing to pay either an accountant or a lawyer every time you want something done.

As for the voting situation, if there is one trustee, that being the trustee company, and if the kids have the majority of the shares in that company (which, I accept, you would not recommend), then the kids have effective control. It does not matter if ma and pa and the lawyer and the accountant are the only directors of the trustee company and that they all vote unanimously, because the kids can simply remove them all as directors and then have another vote. A company is controlled by its shareholders, not by its directors.

[Perry]

I think that our disagreement lies in your smallprint: Why are you lumping directors and shareholders together? They are very different things. A director is an officer of the company, engaged to run it. A shareholder is an owner of the company.

My suggestion was not to make the children directors of the trustee company. My suggestion was to make them shareholders of the trustee company. So they don't run the company, but they have the ultimate control.

As I understand it, in a well set up trustee company of
this nature, (for example) there will be three directors
who will also be the sole shareholders.

Your last suggestion is a recipe for problems. Many
historical trusts were set up in an analogous fashion,
wherein parents became the 'captives' of their children.
To do as you suggest would be fraught. I doubt if many
'specialists' would recommend such an arrangement.

[Green Fish]

I'm with you now: The independent director & shareholder is there to avoid the suggestion that ma and pa have not made a proper disposition of their property to the trust and have simply transferred it to themselves wearing a different hat - although that suggestion could still be made if ma and pa hold a majority of the shares.

What about this?: Ma and pa are the directors, and the lawyer holds all the shares? With this structure, ma and pa have day-to-day control of the trustee company but do not, on the face of it, have ultimate control.

[Perry]

I disagree again. It's not who the directors
and shareholders are, or what the share ratio
is, or who the Trustees are, it's how they act.

If the Trust is treated as an alter ego, and
there is inadequate evidence that the trustees
and/or trustee company/directors did not act
with due consideration of (among other things)
Sections 13B and 13C of the Trustee Act 1956,
then the trust will be potentially subject to
challenge by the beneficiaries and/or IRD et al.

Sorry for that overly long sentence/paragraph!

[Green Fish]

True, but bad behaviour by a trustee can ruin any structure. I still believe that the structure is a good one:

(1) Ma and pa, as directors, run the show on a day-to-day basis, without having to pay the lawyer every time something needs doing.

(2) It cannot be said that ma and pa control the trustee company, because they do not hold the shares in it.

(3) The kids have no ability to take over.


So the lawyer owns the shares in the trustee company, and is there to exercise his/her legal wisdom as the sole shareholder in the event of a problem emerging. If no problems emerge, there's no need to take up any of the lawyer's valuable time.