Asset Transfer to Trustees - co-ownership

Is it feasible/advisable, from a general trust management perspective, to directly transfer an owner’s 50% interest in commercial real estate to a discretionary trust (trustees become registered co-owners). What are the pitfalls and potential issues for trustees to consider?

Mark Nierada
Integris Law Group

Can be fine in principle, I’m sure it’s been done thousands of times, but:

  1. Why is it being done?
  2. Is UK tax a issue? If so, how are they getting around the entry charge?
  3. Will there be professional managers?
  4. Do the trustees have the experience / resources / staff to do a proper job? (even with managers in place). A trustee which usually only holds financial investments may find itself in trouble.
  5. Does the co-ownership agreement address disagreements between co-owners satisfactorily?
  6. Are the trustees insured for it? and is the property properly insured for its full value.
  7. Will the trustees have ready and unfettered access to liquid funds to cover all outgoings or will they have to go cap in hand to the settlor, which can lead to disagreements over the timing and sums paid.
  8. Is the settlor willing to pay the trustees (or allow them to take payment) to the necessary level to allow them to do a proper job?
  9. What are the trustees’ joint duties under the property documents (to a landlord or tenant or both)? Commercial risk will depend on the nature of the assets, agreements, tenants and location.

Andrew Goodman
Osborne Clarke LLP