P lab highlights trustee property risk

Media Release

28 May 2007

P lab highlights trustee property risk

A recent media story of a former All Black great being a trustee for a property where a P lab was discovered highlights some interesting issues for trustees. While the story itself is interesting, it was the risk to trustees that concerned Mark Maxwell, author of the latest book on trusts “Trusts – A Kiwi Sham?”

“While finding a P lab in a trust property you are trustee for might be rare, there are many other risks that can see unsuspecting trustees paying thousands of dollars compensation back to the trusts they are responsible for” says Maxwell. These other risks could include properties being underinsured, or worse not insured at all, lack of maintenance and even leaky homes.

Maxwell’s concerns stem from his view, supported by latest statistics from his online Trust Bust Test at www.integritytrust.co.nz showing 70% of trusts are at risk, that most trustees simply do not understand what they are responsible for when taking on the role.

Using the P lab story to illustrate, Maxwell suggests that if trustees in this type of circumstance did not have a robust property maintenance program in place, they could be at risk of personal financial loss.

How is that possible? Easy, trustees have a fiduciary responsibility to the trust beneficiaries and it is these very beneficiaries that will sue any trustee found negligent in their duties. One of these duties is to protect trust assets, which includes insuring and maintaining them in the case of properties, and if it could be proved it was reasonable that they should have known about a particular risk they could be in trouble.

Any trustees found negligent in a P lab case could be at risk of meeting any cost of clean up, potentially thousands of dollars, as well as compensating the trust for any loss in value of the property. Given a P lab discovery may be noted on a council LIM report, that loss could be considerable.

Maxwell estimates there are around 300,000 trusts in New Zealand currently and, if his online statistics are correct, then over 200,000 are at risk and need to be remedied, and remedied as soon as possible according to Maxwell. “The longer trusts are not managed well the easier it is to challenge them and potentially find the trustees negligent in their duties” he says.

The answer for trustees in order to protect themselves is to ensure they have adequate maintenance processes and policies in place for trust assets. In the case of a property it may be that an independent property report highlighting future maintenance is warranted. And in a note for professional trustees, Maxwell believes any trustee that has not at least visited the property they now own they may find themselves somewhat embarrassed should something go wrong and the beneficiaries come knocking at their door asking questions.

Mark Maxwell is Chief Executive and co-founder of Integrity Trust Limited (www.integritytrust.co.nz), a company specialising in trust management.

ENDS

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