Corporate trustees are a common feature of modern trusts. Professionals increasingly act through corporate trustees to address concerns over liability. While some concern has been raised about the wisdom of utlising uncapitalised corporate trustees – the practice is widely acknowledged and accepted.
Where views diverge is on when or whether corporate trustees should accept multiple appointments. Unless the trustee is well capitalised, or suitably insured, it is suggested that corporate trustees should not be utlised by multiple unrelated trusts. By this what is meant is within a family grouping where the position of each trust is well appreciated it may be appropriate for a single company to act as the trustee of more than one trust.
What is not generally appropriate is a single corporate trustee acting for multiple trusts. The risks of this have been sheeted home in a number of cases: see Is anybody listening? However, inexplicably the practice continues. The issue with the practice, which has had multiple airings in the courts is, if one of the trusts for which the trustee acts has a solvency issue, the trustee faces the prospect of liquidation or receivership – and then every trust for whom the trustee acts faces the cost of appointment of a new trustee and the transfer of the trust assets.
Another consideration, is what happens if the trustee acts in breach of its trustee obligations or otherwise compromises itself? Consider the following situation:
- a corporate trustee operated by a law firm acts for hundreds of trusts
- the settlor/trustee of one of those trusts, which was settled during the settlor’s marriage separates from his wife
- the wife is a beneficiary of the trust but not a trustee
- the corporate trustee and the settlor trustee set about transferring the trust’s wealth to a trust the settlor’s wife is not a beneficiary of
- the wife files proceedings and is ultimately successful
- significant costs are awarded against the trustees some of which are awarded personally against the settlor trustee and the corporate trustee (that is the judgment limits the amount the trustees are indemnified by the trust)
- the corporate trustee then (unsuccessfully) appeals the costs award
- costs to the corporate trustee mount
- the corporate trustee also acts for a large number of other trusts
Following the release of the judgment the corporate trustee’s shareholders appoint a liquidator.
Imagine the letter going out to the hundreds of trust clients explaining that the trustee company has been put into liquidation and that each trust client will need to appoint a new trustee and transfer all of the trust’s assets to the new trustee. Imagine the legal cost of transferring hundrends of properties and shareholdings (as well as other trust assets) to new trustees.
Will the letter also say that the practice of using a single trustee company for multiple trust appointments has been the subject of court disapproval for years? It is presumed not.
When the practice of using a single trustee company is discussed, the cost of incorporating and managing a new trustee company for each trust is often cited as the reason. However, if this cost is truly significant, the question must be asked, what is the cost of not incorporating dedicated trustee companies? What information should clients be given about the risks of a trustee company with multiple appointments? This raises serious disclosure issues that should be addressed.
A dedicated trustee company does entail expense. There is the cost of incorporation, the annual Companies Office return and possibly a tax return. However, these costs can be addressed in two ways. Firstly, if those costs are considered significant the question must be asked – are there sufficient funds to properly administer the trust at all? Secondly, the dedicated corporate structure means that in the event that a change of control is required – instead of the cost of retirement and appointment of a new trustee and the related transfers and conveyancing, all that is required is a change of director, and in some circumstances shareholder. The cost of which is nominal.