Credit Applications in the Name of a Trust

It is very common these days to see Companies using trading Trusts as a vehicle to run their business. So how should you open an Account for your Customer if the Credit Application has been filled out in the name of a Trust?

A couple of points should be made at the outset:-

  1. A Trust is nothing more than a series/collection of rights and obligations between 2 parties (the Settlor and the Trustee) usually set out in detail in writing in a specific type of legal document, a Deed. The idea is that a Settlor (or Founder) will start with a sum of money (usually a small amount, say $100) which he gives to the Trustee (usually a Company but can be an individual) to hold on trust for certain named beneficiaries (usually family members).
  2. The Deed (or agreement in writing) will provide that the initial amount ($100) can be added to. Any other property that is added, will be subject to the same terms of the Trust as the initial $100 amount. Any property can be added including a business, real estate, cars, indeed any assets at all. Whatever property is held in the Trust is held for the benefit of the named persons (usually family members) as set out in the Deed.

This means that property held in the Trust is not available for creditors, it belongs to the beneficiaries. From a Credit perspective, this will cause issues. If credit is to be extended based on what appears to be available assets then there is no point in opening the account unless there is access to those assets.

We recommend that Accounts in the name of a Trust be opened in the following manner (using our own name as an example):-

“Ledlin Lawyers Pty Ltd in its own right and as Trustee of the Ledlin Lawyers Family Trust.”

If you look closely at the manner in which we suggest the Account be opened, you will see that we are wanting to deal with the Company with both its hats on – one as it is (Ledlin Lawyers Pty Ltd ) and one as a Trustee (Ledlin Lawyers Pty Ltd as  Trustee of the Ledlin Lawyers Family Trust).

That way you will have access to any assets that are held by the Company, either for itself, or for the beneficiaries of the Trust. In addition, you should ask for personal guarantees from the Directors and any adult beneficiaries (you can find out those details by asking for a copy of the Trust Deed and also asking for a list of the beneficiaries together with their ages).

In our experience, many Clients tell us that their systems will not cope with such a large client name as the Account Holder. This is of little concern, as long as you make it clear on the Account Application and on the “Welcome Aboard” letter, then the fact that the Account is just in the name of the Company should not present any issues. Clearly it is the intention of the parties to have the account opened in the manner described and that is the important factor.