Tuesday, February 6, 2018

When one is no more fun – another tip on changing trustees **

View blog When one is no more fun – another tip on changing trustees by Matthew Burgess

As highlighted in previous posts, there are a myriad of issues that should be taken into account in relation to any decision to change the trustee of a trust (see for example - Changing trustees of trusts – Simple in theory … not so simple in practice).

One critical issue under the Trusts Acts in most states is the rule that where there are two or more individual trustees appointed initially of a trust, the retiring trustees will continue to be liable unless replaced by:
  1. at least two individual trustees; or 
  2. a ‘trustee corporation’. 
For the purposes of these rules the ‘trustee corporation’ must be a formal trustee company, as opposed to a private propriety company.

Importantly, the trust instrument may override these rules and allow trustees to be discharged, even when replaced by a single trustee.

Often however trustees will be changed without the required permission in the trust instrument, completely ignorant of the Trust Acts rules, meaning the retiring trustees unknowingly continue to be liable.

For obvious reasons we therefore generally recommend an amendment to any trust deed that does not expressly override the Trusts Acts requirement, however this is approach is also subject to the standard mantra ‘read the deed’ as often deeds will not in fact permit this type of variation.

In situations where a variation is not permitted, one work around that helps in some (but unfortunately not all) states is to appoint (say) one individual trustee and a propriety company of which the individual trustee is the sole shareholder and director.

** For trainspotters, ‘More Fun’ is song by legendary Australian band Radio Birdman, learn more here – https://www.youtube.com/watch?v=xcZc5d0Wnws

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