The High Court has recently made it clear that co-trustees cannot expect full reimbursement where the other trustee or trustees have been the cause of a loss for which the trustee is liable.
In Selkirk v McIntyre [2013] NZHC 575, Selkirk was a trustee of McIntyre’s family trust. The family trust did not pay GST on the subdivision it undertook.
IRD were able to recover the tax and penalties in full from Selkirk who was an independent trustee. McIntyre, the other trustee, has since departed for Australia.
Selkirk tried to recover full reimbursement from McIntyre on the basis he was blameless and he was a passive trustee and McIntyre was responsible for day to day management of the trust and Selkirk had repeatedly requested to put the trust’s affairs in order.
The High Court declined Selkirk’s request for a full reimbursement and said that he was jointly and equally liable as a passive trustee is not entitled to delegate responsibility to the active trustee.
The Courts are increasingly finding trustees are responsible for the actions of all other trustees and not allowing trustees to delegate or avoid their duties. It is also clear that a trustee who sits idly by and allows another trustee or trustees to cause loss or liability will not be able to turn around and claim that they had no responsibility as the other parties were handling all of the affairs of the trust.
This is a timely reminder that trustees must take their position very seriously and be well aware of their duties and responsibilities. It is essential that you fully understand your obligations and if you are in any doubt as to the responsibilities and duties of a trustee you should seek advice.
Farry and Co., have extensive experience in establishing and administering trusts and can advise you in this regard.
If you require any advice or further information on the matters dealt with in this publication please contact the lawyer at Farry and Co. who normally advises you or alternatively contact:
Paul Farry
09 379 0055 or 03 477 8870
The information contained in this publication is intended as a guide only. It does not constitute legal advice and should not be relied upon as such. Professional advice should be sought before applying any of the information to particular circumstances. While every reasonable care has been taken in the preparation of this publication, Farry and Co. does not accept liability for any errors it may contain.