You’ve been asked to be a trustee of a trust. The question is, should you do it? Appointment as a trustee can appear an honour, or if you are a professional, possibly a revenue stream.
However, before accepting, there are some things you need to know.
A good starting point is to ask to see the deed of trust and the trust records. This achieves two things, firstly, as a trustee you are governed by the deed of trust, so a review of this will indicate what your powers and obligations are, and who you will be acting as trustee for. Secondly, the condition of the records will give you an idea of how well the trust has been managed to date. If the trust has been badly managed, or records are incomplete, this does not necessarily mean that you should not accept the appointment. However, it is a flag that you should make further enquiries.
You should also confirm that the deed contains an adequate indemnity and establish whether decisions must be unanimous, rather than by majority. Majority decision making can be easier, as deadlocks can be more easily avoided. However, you have to consider the possibility of being ultimately liable for a decision that you did not make, or agree with, or possibly even know about.
Reason for appointment
If you are replacing a trustee, ask why that trustee is resigning, or being removed. It is also a good idea to acquaint yourself with all the trustees and satisfy yourself that these are people you can work with. At this point it is also sensible to consider whether these are people you would be able to stand up to if you did not agree with something they wanted to do. See for example 2 Minute Trustee Success – Tough decisions
Trustees are personally liable. This means that if you incur a loss or liability as a trustee that cannot be recouped from the trust, you will bear that liability personally. If you are a professional trustee, your professional indemnity insurance may cover such losses. However, if the trust in question is a family or related trust, you may find that your insurance will not apply. Read the fine print of the policy! The issue of trustee liability needs to be considered both “within” the trust between the trustees and the beneficiaries, and outside the trust between the trustees and third parties. Remember that an indemnity in the deed will not protect you from third party claims.
Establish the nature of the trust’s assets. This is particularly important if the trust is a trading trust, as you will need to be satisfied that you have adequate skills to manage the trust.
What will happen if your co-trustee dies?
Forward planning is another important aspect of trustee forward planning. See trustee forward planning by Lindsay Pope 2 Minute Trustee Success.