More firms today are looking at the prospect of setting up a Trust Corporation to assist in the administration and management of trusts and estates. Here are a few basic pointers to help you decide if this is for you or your firm.
Why a trust corporation may be useful
A sole trustee company cannot give a valid receipt for capital money on the sale of land whereas a trust corporation can – s.14 Trustee Act 1925 & s.27 Law of Property Act 1925. If a trustee wishes to retire, but only the statutory powers of retirement under s.39 Trustee Act 1925 are applicable, this will only be effective if there are either two persons or a trust corporation remaining as trustees after the retirement.
Trust corporation requirements
- 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.
A trust corporation is a corporation which:
- 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 than £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.
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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. 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 Ltd  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 own 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.
Running the trust corporation
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 as 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.
As a director of the trust corporation you must ensure that it has in place a control and governance structure which provides oversight to its business activities, strategic direction, financial performance and policies. This includes undertaking regular reviews of its operating risks and having systems and controls in place that mitigate those risks in respect of the trust corporation and its trusts. This will mean having clear guidelines for when and on what basis a new estate or trust should be taken on and of course, when it should not be administered by the trust corporation.
It can be useful to have some internal rules such as no partners of the law firm which owns the trust corporation can become or remain a director once they become a consultant or retire from the firm. This would protect the trust corporation in the event that the director became non-resident or became resident in another jurisdiction.
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.
Trust corporations are not for everyone but they can be a useful part of a law firm’s offering. It will entail work and capital to set it up but if they are financially worthwhile they provide a useful means of managing risk and preserving continuity in the administration of trusts and estates.
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