Trusts: Why Do We Need One?

One of the biggest mistakes that we see on contracts – whether they be residential land contracts, commercial land contracts or business contracts – is the failure to correctly identify one of the parties to the contract where one is a trust. Often a buyer of a property will say that the entity that is buying the property or business is the “Smith Family Trust”. The issue here is that the Smith Family Trust is not a legal entity.

To be a legal entity the “Smith Family Trust” must have a trustee, therefore the correct entity might be “John Smith as trustee for the Smith Family Trust” or “Smith Pty Ltd a trustee for the Smith Family Trust”. Not putting down the correct entity can make the contract invalid and allow either party to terminate for lack of certainty. This will mean that the agent will not receive their commission!

The reason for this is that a trust without a trustee is not a legal entity; the trust has the benefit of the property whilst the trustee has the legal ownership. One cannot exist without the other and this means that you need to have both in place to properly enter into a contract.

From a practical level we know that it can be difficult for some people to know the trustee off the top of their heads – let’s face it they have a lot on their minds and therefore they may struggle to remember these finer details. Often we have agents express their frustration on this point so here are some tips on how to easily obtain this information:

Firstly if you are preparing a contract where the seller is a trust and does not know the name then from your title search you will have the details that you need: “Smith Pty Ltd as trustee under instrument 705865486” will appear as the registered proprietor on the title search and is a perfectly acceptable way of listing the seller.

Secondly, a quick call by the buyer or the seller to their solicitor or accountant will quickly solve the issue as they should have those details at their figure tips.

Getting the right entity is essential to make sure that a contract is valid and binding and to avoid any transfer duty issues. If you have any questions please contact our office on 07 3667 8966.