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Trustees need to be more aware of potential liabilities

Media Release

Trustees need to be more aware of potential liabilities

18/12/2014

It is important for potential trustees to weigh up the risks compared to the rewards when considering whether or not to accept a role on a trust, says Tony Marshall, Tax Advisory Principal for Crowe Horwarth’s Dunedin office.

There are an estimated 500,000 trusts in New Zealand, meaning many people, especially in the farm sector where asset preservation is a key consideration, are trustees either personally or as the director of a trustee company.

“Often a trust is suggested as a way of protecting assets from creditor claims, reducing income tax obligations or gaining access to rest home subsidies,” said Mr Marshall. “However, the effectiveness of a trust in those circumstances is lessened when documentation has not been correctly prepared and decisions of the trustees have not been properly documented and supported,” he said, noting that a number of recent court decisions had highlighted this point.

Trustees needed to be aware that a number of statutes, including the Resource Management Act, Goods and Services Tax Act, and the Health and Safety in Employment Act, imposed potential liabilities. Even when indemnified from the assets of the trust, the trustee could face a personal liability if there were insufficient assets to meet the liability.

Mr Marshall said that the health and safety aspect was one example where liabilities were often forgotten, particularly when a trust was only acting in the capacity of landlord in relation to farmland that it owned. The trustees needed to ensure that sufficient steps had been taken to mitigate the risks that might arise on the land, and that the tenant was also taking appropriate steps to mitigate those risks, through a health and safety management plan.

The duties a trustee had in relation to the beneficiaries of a trust were also expected to increase as a result of the Law Commission’s Review of Trusts and the recommendations it has made for reform, which meant there was likely to be increased risk in the future, he said.

“It is little wonder that many professional firms are reconsidering whether they want to continue offering trustee services to their clients,” said Mr Marshall.

“For those that remain as trustees, it is important to understand the activities the trust is going to undertake, what risks and liabilities they may face as trustees, and take steps to mitigate those risks by taking professional advice.”

ENDS

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