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agents for the trust. They handle all of the management and day-to-day operations, including distribution of income to the beneficiaries, and get no direct benefit from the trust. Often a company is specifically enacted to take on the role of trustee, referred to as a ‘corporate trustee’. As the name suggests, the beneficiaries of the trust receive the benefits (i.e., income and assets) of and generated by the trust. Trading trusts share many of the advantages and disadvantages of partnerships and joint ventures. Similarly trusts have no registration requirements and little statutory obligations and requirements, which mean benefits of confidentiality and flexibility. However, trusts are not separate legal entities and do not have limited liability protection.
Notable advantages and disadvantages of trading trusts are as follows:
Advantages
Disadvantages
Flexibility and freedom in structuring the trust and drafting trust deed – no statutory requirements. No registration requirements. No statutory ongoing administrative obligations. Confidentiality – no registration requirements whatsoever, and the trust deed can remain confidential. In the case of a corporate trustee, benefits associated with companies would apply in respect to the trustee, such as limited liability. Flexibility to introduce/raise new capital. Flexibility as to distributions of profits/income to beneficiaries; specifically, there are no solvency test requirements. From the beneficiaries’ perspective, trustees have fiduciary obligations to the beneficiaries and the trustee can be held personally liable for a breach of obligations and trust (from the trustee’s perspective, this can be mitigated by
Trust does not have a separate legal identity. The trust cannot own property or assets in the trust’s name – ownership of all property or assets are recorded in the name of the trustee(s). No limited liability protection – the trustee (as effectively the agent of the trust) can be personally sued and held liable (however this can be mitigated by having a corporate trustee). Limited existence – trust can only exist for a maximum of 125 years. Ongoing statutory administrative obligations, including:
Record keeping;
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Updating property titles when trustees change.
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In the case of a corporate trustee, disadvantages associated with companies would apply in respect to the trustee. There are some perceived complexities and
ILN Corporate Group – Establishing a Business Entity Series
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