M, a trustee of a family trust, took out a substantial bank loan to buy a business and wanted the loan secured by an existing mortgage over her home.  The home was owned by the family trust, so the bank requested a guarantee from the trustees of that family trust. 

Sometime later M defaulted on her loan repayments, and the bank relied on the guarantee from the trustees to have the loan repaid.  The trust was forced to sell the home, but even this was not sufficient to repay the debt to the bank.  The bank then tried to pursue the trustees personally.

Fortunately, the trustees had signed guarantees which limited their liability to the assets of the trust.  As there had been no fraud or misconduct by the trustees, they were not required to personally repay the bank.

Trustees are often asked to sign a lot of trust paperwork, and do not always review the content thoroughly before signing.  Where trustees provide guarantees they should ensure that they are not agreeing to be personally liable.  Otherwise they risk having their personal assets used to recover debt despite not having been involved in their personal capacity.

Before signing guarantee documents, trustees should obtain independent legal advice to ensure they understand the effect of what they are entering into.