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  • Lucas & Lucas

Being a Trustee for a Friend

Susan* called to see us with bank loan and mortgage papers. She had agreed to be a trustee for Bob*, her brother’s trust. She presented with over thirty pages of small print to read. She wanted to know what risks there might be for her in signing the bank papers.

Many people are asked to be trustees for family and friends so Susan’s important question is topical.

The bank forms limited her personal liability but that was not the end of the story.

Susan needed to know that her brother, Bob, a builder was not also lending money to the trust either personally or through his company. If the trust did have other debts she may be liable to her brother’s creditors if the trust assets became insufficient.

Although Bob was building a home for himself and his new partner, Susan also had to be sure that the equity wouldn’t be used to finance the building business. Any stress at that end might require the house to be sold, and being a builder, leave Susan with unfunded tax to pay.

In this case Bob’s lawyer had things well in hand. There was a distinct limit on the loan. The other trust funding was by cash gift, there were no other debts, and Bob’s building company was personally owned by him, and a proper resolution was prepared to record the transactions.

It wasn’t my concern, but Bob and his new partner also had properly documented their expectations of each other.

If you are a trustee, you do have to ask nosey questions, you do need to see the trust accounts, you do need to know what your duties are and you can’t delegate decisions to other people.

* Names have been changed.

For further information contact us or call (03) 477 8080

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