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In New Zealand, it is popular to hold property and assets using trusts. This can be beneficial for a range of legal, tax and financial reasons. A trustee is one of the most important parties to a trust because they are responsible for managing the trust. They are the legal owners of the trust assets and property. When selecting a trustee, you may choose an individual or a company (known as a ‘corporate trustee’). This article explains:

  • what a corporate trustee is;
  • the reasons you would select a corporate trustee instead of an individual trustee; and
  • how to establish a corporate trustee.

What Is a Trust?

A trust is a legal arrangement where a person or entity (the trustee) holds property on behalf of other persons or entities (the beneficiaries). Under a trust arrangement:

  • the trustee is the legal owner of the property; and
  • the beneficiaries are the beneficial owners of the property.

For example, you may choose to establish a trust with a corporate trustee to hold shares in another company. The shareholder of those shares is ‘LV Trust Pty Ltd as trustee for LV Holding Trust’. Under this arrangement, the legal owner of those shares is LV Trust Pty Ltd. However, it does not hold those shares for its own benefit. Instead, the underlying beneficial owners are the beneficiaries of LV Holding Trust. This means that any income or capital which is distributed to LV Trust Pty Ltd (as the shareholder) will end up going to the beneficiaries of LV Holding Trust.

Using a Corporate Trustee

The trustee of a trust can be an individual or a company. A company that acts as a corporate trustee should not be engaging in any business activities and should only serve as the trustee of the trust. 

As with all other companies, a corporate trustee will need to have at least one director and at least one shareholder. Generally, the share capital of a corporate trustee is nominal because the company itself will not have any inherent value. It only exists to act as a trustee company.

Corporate Trustees vs. Individual Trustees

There are several advantages to having a corporate trustee instead of an individual trustee, such as:

  • a corporate trustee can exist indefinitely, unlike an individual trustee who will eventually die;
  • a change of control at the trustee level will not affect the legal ownership of the trust’s property. For example, if an individual trustee of a trust changes, then the legal ownership of the trust’s property must transfer from one individual to another. Whereas, if the directors and shareholders of a corporate trustee changes, the legal ownership of the trust property is unchanged (i.e. the corporate trustee remains the legal owner);
  • asset protection. For example, if you are the individual trustee of a trust, your personal creditors may attempt to access the assets you hold as trustee. Whereas, the assets of the trust are better protected if the trustee is a corporate trustee who is a separate entity from you;
  • limited liability. For example, you may be the individual trustee of a trust and you incur personal liability through your role as a trustee in circumstances where you are not indemnified out of the trust’s assets. This liability may affect your personal assets. However, a corporate trustee incurs liability as a separate legal entity, meaning any claims against the corporate trustee should not affect your personal assets.

However, having a corporate trustee does involve greater set-up and maintenance costs compared to an individual trustee. You will have to incorporate the trustee with the New Zealand Companies Office. This will include the payment of a fee.

The corporate trustee must also file an annual return with the Companies Office each year (and pay the annual return fee) to confirm it is still operating as a company and should remain registered.

Establishing a Corporate Trustee

To establish a corporate trustee, you will need to:

  • register a company with the New Zealand Companies Office; and
  • the company should pass a resolution approving its appointment as the trustee of the trust.

If you are establishing a new trust, you should set up your corporate trustee before the establishment of the trust. If you have an existing trust where you would like to change the trustee to a corporate trustee, you will need to follow the process set out in the trust deed to change the trustee.

Key Takeaways

When establishing a trust, you should carefully consider who you will select to be the trustee. There are several benefits to having a corporate trustee of a trust. However, you also need to be comfortable with the additional set-up and maintenance costs. To establish a corporate trustee, you will need to register a company to act as a trustee and decide on who the directors and shareholders will be of the company. However, once you establish your trust and appoint its corporate trustee, it can last indefinitely. If you require assistance with establishing a family trust or setting up a corporate trustee, contact LegalVision’s New Zealand business lawyers on 0800 005 570 or fill out the form on this page.

FAQs

What is a Trust?

A trust is a legal arrangement where a person or entity (the trustee) holds property on behalf of other persons or entities (the beneficiaries).

What is a Corporate Trustee?

A corporate trustee is where the trustee is a company. This can be advantageous over an individual trustee because a corporate trustee can exist indefinitely, liability is limited and the trust’s assets are protected.

How Can I Establish a Corporate Trustee?

You can establish a corporate trustee by registering your company with the New Zealand Companies Office and passing a resolution appointing the company as the trustee of a trust.

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