Trustee Directors Liability Update

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Contents

1. Contents; Introduction
2. Liability of corporate trustees
3. Summary

Introduction

Background

Using a trust to own investment assets has advantages from both a tax and an asset protection perspective. However, many investors mistakenly assume that if a problem arises and the trustee of a trust is sued, they can merely change the trustee and thereby escape any liability, keeping the assets held within the trust safe from attack. What these investors have perhaps not been made aware of is a legal concept called the trustee’s “right of indemnity”.

In a nutshell what this means is that the trustee (whether the trustee is a real person or a company) has a right to be indemnified out of the trust assets for liabilities the trustee properly incurs in the conduct of the role of trustee. Assume for example that a trustee owned a substantial share portfolio and several rental properties. If the trustee negligently failed to repair some dodgy stairs at one of the rental properties and that resulted in an injury to the tenant then all the assets of the trust would be at risk when the tenant successfully sued the trustee. The tenant when seeking to enforce a judgement against the trustee would “step into the shoes” of the trustee and be able to sell the properties and shares to recover the judgment debt.

Contents: Page 1: Contents; Introduction Page 2: Liability of corporate trustees Page 3: Summary

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