The IRD have recently confirmed their position on the liability of trustees for trust debts. In an article by Graham Tubb and Sanjiv Weerasinghe from the IRD’s legal team, they hand out a timely warning to trustees.
The essential elements are; Trustees are personally liable for all debts incurred in the conduct of the trust. Trustees are jointly and severally liable for all trust debts. Trustees can rely on an indemnity from the trust BUT only to if the trust assets are sufficient to meet the debt.
If the debt exceeds the assets, then the trustee will be personally liable for the shortfall. Some contracts will contain a clause which indemnifies or releases professional trustees from personal liability (agreements for sale and purchase and guarantees are common examples).Trust Deeds will often contain a trustee liability limitation clause. This only gives protection from claims by the beneficiaries of a trust .not third parties like the IRD. If you have any questions, please contact us!