Susan’s sister Amelia recently asked Susan if she would become a trustee of Amelia’s family trust.  Susan was more than happy to help out her sister, and she agreed without hesitation.

Shortly after Susan agreed to become a Trustee, the trust purchased a property.  As part of the finance for the purchase, the bank required a guarantee from the Trustees of the trust over the Trust’s mortgage borrowings.

The guarantee recorded that an “independent trustee” of the Trust was only liable to the value of the assets of the Trust and therefore would not ever be required to pay anything out of their own money if there was a default on mortgage payments.  Susan declined to take legal advice about the effect of the deed as she assumed she was an “independent trustee” and signed the document.

Unfortunately for Susan, the trust deed for Amelia’s trust included in the list of beneficiaries “any siblings of the Settlor” (the Settlor being Amelia).   As Susan was a beneficiary, she was not considered an independent trustee.

Unfortunately the trust was unable to meet its mortgage repayments and the bank came after Susan and the other guarantors to cover the unpaid amounts. As Susan was the only one with any money she ended up having to meet the entire outstanding mortgage repayments.

If Susan had been an independent trustee she would not have been caught in this situation. If you are asked to be trustee of a trust, it pays to take legal advice to ensure you fully understand your obligations and risks.