To hold, but not to have: corporate trustees and landed estates
Landed estates have traditionally been owned by a series of family trusts created for the benefit of a particular family, often across multiple generations.
The assets of the family trusts (such as property, land and chattels) are typically held and, where relevant, registered in the names of the individual trustees.
Taking the fictional Downton Abbey estate as an example, Lord Grantham and his solicitor, George Murray, might theoretically hold:
- Downton Abbey, the surrounding parkland and chattels as trustees of the Downton Abbey Settlement;
- 1,000 acres of farmland and woodland surrounding the estate as trustees of the 6th Earl of Grantham’s Will Trust; and
- residential cottages and development land in the local village as trustees of the Grantham Discretionary Settlement.
In practice, the position is often more complicated for larger estates, which usually have a greater number of trusts with different combinations of trustees and beneficial owners.
While this structure is commonplace, it can be administratively burdensome when transactions involving trust assets take place (eg in the event of land being transferred, sold, charged etc) or on a change of trustees (eg on retirement or death).
Returning to the Downton Abbey example, if Tom Branson and Henry Talbot were appointed as additional trustees, the legal title of all trust assets would need to be transferred into the joint names of Lord Grantham, George Murray, Tom Branson and Henry Talbot (as the new and continuing trustees). This would involve the preparation and execution of numerous transfers and other documents, and can lead to complications where, for example, land is charged to a bank as the security arrangements would also need to be reviewed and updated.
In recent years, some landed estates have switched to a corporate trustee structure, whereby a trust corporation or, more commonly, two newly incorporated trust companies (two are required for Land Law purposes) act as trustees.
To establish this structure, the individual trustees retire in favour of the trust corporation / trust companies, which then act as trustees in their place. The directors and shareholders of the trust corporation / trust companies typically reflect the current trustees and the legal title to land and other assets will be transferred to the trust corporation / trust companies to hold on behalf of the trust. Provided that there are no changes to the underlying beneficial ownership of the trust assets, there should be no tax consequences in adopting this structure.
By way of illustration, the Downton Abbey estate could adopt corporate trustees as follows:
- the trustees of the Downton Abbey Settlement would retire in favour of A1 Limited and A2 Limited;
- the trustees of the 6th Earl of Grantham’s Will Trust would retire in favour of B1 Limited and B2 Limited; and
- the trustees of the Grantham Discretionary Settlement would retire in favour of C1 Limited and C2 Limited.
Lord Grantham, George Murray, Tom Branson and Henry Talbot would be the directors and shareholders of the different trust companies.
What are the benefits?
There are a number of benefits in implementing a corporate trustee structure:
- Continuity: when the trustees change (eg on retirement or death), it will be a straightforward process to update the directors and shareholders at Companies House. Crucially, the legal title to land will not need to be updated at HM Land Registry and the underlying security documents etc will not be affected (ie as the trust corporation / trust companies will remain the legal owners).
- Identification: it is easier to identify the land owned by each trust. For example, whereas previously all trust land would have been registered in the names of Lord Grantham and Mr Murray (as trustees of the various trusts), the land will now be registered in the names of the trust corporation / trust companies and it will therefore be immediately obvious from the Land Registry titles which trust it is owned by (eg all land owned by the Downton Abbey Settlement would be registered in the names of A1 Limited and A2 Limited, all land owned by the 6th Earl of Grantham’s Will Trust would be registered in the names of B1 Limited and B2 Limited and so on).
- Execution of documents: contracts and other paperwork can be signed more easily, as a company can be bound by one director (although this does not absolve the director from discussing each matter with his or her co-directors).
- Protection: individual trustees can be exposed to personal liability (although in practice they are offered some comfort under the trust deed by means of an exoneration clause, supplemented in many cases by trustee indemnity insurance and / or personal indemnity from the settlor). However, the liability of corporate trustees will be limited to the value of the assets held at any given time by the trust corporation / trust companies, which will provide an additional element of protection. The courts have been reluctant to allow claims against the directors and shareholders if the companies have insufficient assets to meet a claim.
If the individual trustees are uncomfortable with the concept of corporate trustees, they could adopt a corporate nominee structure. This is a “halfway house” whereby the trusteeship remains with individuals, but the land is transferred to two trust companies to hold as nominees.
The steps needed to implement a corporate nominee structure are essentially the same. It achieves all the administrative benefits of the corporate trustee structure, but decision-making remains guided by the individual trustees.
- Structure: the trustees need to consider which structure they would like to adopt. If the estate is uncomfortable with the full corporate trusteeship option, they may prefer to adopt the corporate nomineeship option.
- Implementation: it is important to ensure that the structure is appropriately documented at the outset (eg declarations of trust confirming that the trust corporation / trust companies are holding the land upon the terms of the trust etc). Once in place, these documents should not require updating.
- Governing documents: the governing documents of the trust corporation / trust companies, such as the articles of association and shareholders’ agreement, should be drafted to align with the decision-making powers conferred under the terms of the trust. For example, trustees of private trusts must usually act unanimously, whereas directors of companies often act by majority.
For more information on corporate trustees or nominees, please contact Katie Talbot or Thomas Denny.