Has FATCA revealed your firm should have a trust corporation?
A trust corporation is a limited company but incorporated in compliance with s.68(18) Trustee Act 1925:
“Trust corporation’ means the Public Trustee or a corporation either appointed by the court in any particular case to be a trustee, or entitled by rules made under [the Public Trustee Act 1906 s4(3)], to act as custodian trustee“
The Public Trustee Rules 1912 were made under the Public Trustee Act 1906. Rule 30 sets out which corporations are entitled to act as a custodian trustee; therefore at the same time defining, under the terms of the Trustee Act 1925 s.68(18), those which may be a trust corporation by virtue of that entitlement. These include a corporation which:
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- is a corporation constituted under UK or EC law,
- empowered by its constitution to undertake trust business in England and Wales,
- having one or more places of business in the UK; and
- is a company registered (with or without liability) in the UK (or EC) and having a capital (in stock or shares) for the time being issued of not less than £250,000, of which not less then £100,000 has been paid up in cash
Trust corporation benefits
A corporation has a legal existence separate from those of the individual persons who form it from time to time. The company will typically be owned by the partners in the firm and are used when a personal appointment is inappropriate. This immediately cuts down administrative costs as the trust has a perpetual trustee.
A private trustee will only be allowed to delegate his powers to another private trustee in very limited circumstances, but he is permitted to delegate his powers to a trust corporation.
Is this a solution to too many trustees?
Are the lay trustees you deal with good at communication or are you having to chase them a good deal with resultant added costs which you often cannot recover?
If you are going to have to write to all trustees and get their personal identification evidence again to comply with FATCA within strict time limits, as well as everything else for which you need timely answers, would it not make sense to reduce the body of trustees to one and at the same time protect individuals from personal liability?
Does this provide protection for the Directors?
An individual trustee is personally liable for breaches of trust to a beneficiary. A corporate trustee is liable to the beneficiaries, just as an individual trustee is. However, the directors of the corporate trustee owe their duties to the corporate body, not direct to the beneficiaries – Gregson v HAE Trustees Limited  EWHC 1006.
If a beneficiary sues the corporate trustee it names the trustee in any court action; not its directors personally. This can present problems for the beneficiary, since the corporate trustee is unlikely to have assets of its own (it holds the trust fund assets on trust, not as its beneficial property) and so the corporate trustee may have no assets from which to pay damages for the negligence or fraud of its directors, for example.
Trust corporation – potential for conflict
However, the conflict of interest issues do not disappear since the trust adviser is usually a director of the company with the protection of limited liability but this of itself may feel to a disgruntled beneficiary all too convenient when a dispute arises.
The importance of good governance should not be overlooked. Board meetings will need to take place. Minutes must be prepared. The Board needs to review the trusts of which the trust corporation is a trustee. Often a firm might choose to create a nominee company alongside the trust corporation to hold investments but this will require careful consideration because of the Financial Services Acts.
The use of the corporate trustee and the nominee company by clients should be included in the charging structure for the firm when charging clients for trust administration. The trust corporation owned by a law firm will need to be regulated by the Solicitors Regulation Authority.
Setting up a trust corporation rather than a simple trust company may look daunting but has many advantages. For further help on this issue please refer to the Law Society’s recent Practice Note on Trust Corporations dated 16 October 2014: www.lawsociety.org.uk/advice/practice-notes/trust-corporations
Once up and running other parts of the firm may see the benefit not just private clients e.g. corporate clients may want to use it for pension schemes; or shares in other corporate structures.
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