Why set up a Trust with a Trustee company? Some people think it is because the accountant or lawyer wants to make more money, but essentially the reasons are two fold:
- To protect the assets of the Trust; and
- To protect the Trustees of the company who are the directors of the Trustee Company.
The Trustee Company is commonly referred to as the $2 company and is how the wealthy seem to get away with not paying debts or facing the legal consequences of their actions. It also helps with investors and business owners taking risks and protecting their property and family assets. In addition, it can protect against accidents or unexpected events.
When a Trust does not have a corporate trustee, then the individual Trustee or Trustees are personally liable for the debts of the trust and any legal consequences for failure of the business or breaches of the legislation including corporate, tax, workforce, trust legislation etc, the list is endless.
There are a few advantages, but not many, in setting up a trust with no corporate trustee. It is cheaper, more flexible, there is less compliance and arguably less administration.
The tax advantages of having a trust are many and varied, and these still apply, however, any breaches of the legislation, and the individual Trustees are liable, but with a company – a company has limited liability protection and if the paid up capital of the company is $2 then that is the limit of liability, unless other director penalties apply for wilful misconduct or negligence.
If you need guidance in setting up a business structure and are thinking about a trust, then come and see your local TaxAssist Accountant.
David Cornes CPA
Date published 18 May 2020 | Last updated 31 Jan 2025
This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.
