Who should the Trustee(s) of my Family Trust be?

Once you’ve decided a Family Trust is right for you (click here to request my Self-Assessment Tool if you haven’t already taken that), one of the main things you need to decide is who the trustee(s) should be. There is a range of options each with their pros and cons. In this article, I explain five common options on how to structure your Trust’s trusteeship.  No one option is right for everyone and which option is best for you will depend on your circumstances.

One important thing to remember when deciding how to structure your trusteeship is this - Trust property is generally owned in the name of the Trustee(s) – not the name of the Trust.  Keep that in mind as you review the options and determine which option is best for you. 

For the purpose of my explanation below, I am speaking to a couple (e.g. spouses/partners) considering forming a Family Trust.  I start by explaining options at the two extremes, and then settle on three more middle-of-the-road options.

Option 1 - You and your spouse/partner personally be the Trustees with no third/independent trustee
At one end of the spectrum, you and your spouse/partner are the Trustees personally with no independent trustee. There is no general law requiring a Trust to have an independent trustee in order to be valid. Depending on the terms of your Trust Deed, you and your spouse/partner can be the sole trustees of your Trust. However, there are reasons why you may choose not to be the only trustees. 

The downside of this Option 1 is it provides the poorest form of protection of the Trust’s assets in the event of a claim. Because Trust property is owned in the name of the Trustee(s) – not the Trust name - the wider public, including creditors, when looking at the Trust’s assets (e.g. the family home owned by the Trust) will see your and your spouse/partner's names on the title and could wrongly form the view that the Trust’s property is owned by you both personally and is therefore available to meet claims against you personally if they push hard enough on the enforcement front. The truth is, however, you both own the property in your capacity as Trustees of a Family Trust, not personally, but that is not obvious to the outside world. 

The plus side of Option 1 is its ease – you don’t need to form/maintain a corporate trustee, you don’t need to consult with or pay an independent trustee. However, if your purpose in forming a Family Trust is asset protection from business risk, I don't recommend this option. This is because a creditor bringing a claim against you personally, say under a personal guarantee you've given to a supplier or landlord, could try and argue that because there is no independent person involved in the Trust, the Trust is essentially a sham or not real, that the Trust assets are essentially still your personal assets and should be available to meet claims made against you personally. Whether this claim would succeed or not in court will essentially come down to how the Trust has been administered - not the absence of an independent trustee (as mentioned, you can still have a valid trust without an independent trustee). However, your Trust being structured in a way that gives creditors the correct perception of who owns the Trust's assets can go a long way in protecting those assets. 

In summary, for the reasons expressed above I don't recommend this form of trusteeship for persons wanting to protect assets from business risk. Option 1, however, may still be suitable for people setting up a Trust for other reasons.

Option 2 - Have an independent person (e.g. your accountant) be the sole trustee 
At the other end of the spectrum, you and your spouse/partner would not be involved as trustees – either personally or as directors and/or shareholders of a corporate trustee. Rather, you would have someone else who is independent of you and the Trust, someone who is not a beneficiary, be the trustee (e.g. your accountant, a trusted friend or two, or a professional trustee firm). This would provide the strongest form of protection of the Trust’s assets in the event of a claim. 

However, one real downside of this option is the financial cost of having an independent trustee and the hassle factor of needing them to sign and make decisions when you want the Trust to do anything (e.g. buy/sell property, sign a document). If you opt for this option, essentially as a beneficiary you’d be putting through requests for the trustees to consider and they then would make decisions independent of you. This option of trustee, however, will definitely send the message to the wider public, including creditors, that the Trust assets are not yours personally. In fact, with this option it could be difficult for others to even discover what assets are associated to a person. I’ve seen some Trusts with this option, but not many.

Three common options for a more of a middle ground are below:

Option 3 - You and your spouse/partner personally be the Trustees together with an independent trustee (e.g. your accountant or a trusted friend)
The downside of this option is the cost and delay in decisions making (similar to those mentioned in Option 2 above). Benefits include the independent trustee's name will show on the title to Trust property in addition to you and your spouse/partners which helps communicate to the wider public that the Trust’s assets are not yours personally.

Option 4 - Have a Corporate Trustee, that is a company that has the sole job of being the Trustee of your Trust
While there are a variety of sub-options here, it is typical to have you and your spouse/partner both as the directors and 50/50 shareholders of the corporate trustee. Benefits include your and your spouse/partner's names won’t appear on any title to your Trust's assets. Rather, the trustee company's name will show on the title to the Trust’s properties (e.g. "XYZ Trustee Limited") sending a clear message to the wider public, including creditors, that the Trust's assets are not yours personally but are owned by a Trust. With this option you don’t have the downside of costs and time delay in involving a third independent trustee.

Option 5 - Have a Corporate Trustee together with a Protector 
In some ways this option is the best of both worlds - the freedom and ease of not having an independent trustee, together with mitigating the risk of a creditor arguing that you have retained full control of the Trust and its assets. For more information, see my FAQ "What is a Protector and should my Trust have one?".

Summary
The choice of trustee and how you structure your trusteeship is largely a degree of personal choice and what you are prepared to put up with in terms of costs and having to consult with a third person. The option that gives the strongest form of protection of the Trust’s assets is Option 2. If you are not prepared to even put up with risk of someone arguing the Family Trust is not valid because there is no independent person, then Option 2 is best for you provided you're okay to put up with the downsides.

However, remember - you don’t need an independent person to be involved in your trustee structure in order to have a valid Trust. Whether a Trust will do its job in protecting its assets from claims that come to your personally, as explained above, is more of question of whether or not the Trust has been properly administered.

In my experience, most business owners wanting to protect assets from business risk opt for either Option 3, 4 or 5. Personally, I think for most business owners Option 5 hits the sweat spot between freedom of administering the Trust and the protection an independent presence provides.