There’s a process that should avoid any problems down the line
Many people agree to act as trustees of trusts set up by friends or relatives on the basis that they wish to help out or assist their friend or relative in some way. Eventually it comes time to retire as trustee for reasons such as age, the winding up of the trust or other changes of circumstance.
Retiring as a trustee is not as simple as it sounds and there are a number of potential liabilities that need to be covered off.
It’s not widely known that when accepting appointment as trustee, you are taking on a number of personal obligations and accountabilities. Therefore, it’s essential that once you stand down you are completely released from any ongoing liabilities.
Follow the process
If you want to retire as trustee you need to ensure that you are fully released and protected from any obligations:
- It’s essential that the document recording your retirement follows the terms of the trust deed. For example, if the trust deed requires there to be three trustees at all times and you attempt to retire leaving only two trustees, then your retirement is likely be ineffective until a replacement trustee is appointed.
- The documents recording your retirement must be signed by all trustees including you, the continuing trustees and any new trustees. There are legal requirements that must be met for the documentation to be effective.
- If the trust owns property, the individual names of the trustees will be recorded on the title to that property; there will be no reference to the name of the trust itself on the title. It’s essential that documents be completed to get your name off the title and to ensure it’s registered in the names of the continuing trustees and any new or replacement trustees.
- If there’s a mortgage or guarantee provided by the trustees you must get the consent of the lender to the release of your personal obligations. In many cases the lender will require new documents to be completed by the remaining or new trustees.
- It’s common for loan documents with lenders to state that the liability of an ‘independent’ trustee is limited to the assets of the trust. If, however, you are a family member or a beneficiary of the trust the lender may take the view that you are not ‘independent’ and therefore you are personally liable for the borrowings of the trust. Unless the lender’s documents specifically limit your liability, the rule is that you are personally responsible to the full extent of the obligations. When you retire as trustee it’s essential that you obtain a full release and protection from the lender for any personal obligations to it.
- In order to transfer the trust property over to the new trustees, it is necessary for the trust to have an IRD number. Many trusts which don’t earn income have not obtained IRD numbers. However, to transfer the property over to the continuing/new trustees an IRD number will need to be obtained.
- Any signing authorities with the trust’s bank need to be updated, and the retiring trustee must be taken off any mandates or signing authority forms.
- The IRD must be advised, in writing, that a trustee has retired otherwise it will take the view that the retiring trustee remains liable for any tax.
- The local authority will also need to be advised once a trustee has retired otherwise it will assume that the trustees in its records are personally liable for the rates on the trust’s property.
It’s important that you insist on all these steps being followed through even if it’s inconvenient to other parties and some institutions are slow to respond. If you don’t ensure that all these matters have been completed, it may result in significant personal liability for you.