We often hear from firms that they’re not too worried about trusts as they don’t act as trustees for ones that are GST registered or trading. However, no professional trusteeship is without risk.
The following are some things that can still go wrong with family home trusts:
1. Ultra vires acts (“beyond one’s legal power or authority”) such as purchases, loans, investments and guarantees made without the full knowledge and consent of all trustees.
2. Assets not insured or inadequately insured– Most insurers no longer insure a home for full replacement value but for a ‘sum insured value’. The trustees are liable for ensuring that the home held in the trust is adequately insured. Trustees can potentially be liable for the difference.
3. Assets not insured in trust’s name, leading to a claim being delayed or declined.
4. Invalid removal of trustees.
5. Poor investing. It doesn’t need to be a trading or dedicated investment trust for the ‘prudent person’ standard to apply.
6. Non-payment of liabilities.
7. Invalid recording of all current beneficiaries.
8. Potential advisor liability where trust mismanagement results in a loss to the trust.
Gifting used to be the opportunity to get the trustees together. But now that it’s disappeared for many trusts, many firms believe that a trust annual review is the best-practice way to engage with the trust and trustees and ensure compliance.
Please note that above points are merely food for thought. Before becoming a trustee, make sure you get proper legal advice on what your commitments and potential liabilities may be. If you would like clarification on any of the above points, please contact us