If you’ve agreed to act as trustee for a friend, family member or another entity, you’ll be aware that signing up is a relatively easy process. However, retiring as a trustee is not as straightforward. There’s an important process to follow to ensure there are no future problems for you or the trust.
A trustee is personally accountable
If you’ve taken on the duties and obligations of a trustee, you’ll know you’re personally accountable for performing the duties set out in the trust deed and by law. When you retire as a trustee, you face a number of potential ongoing liabilities if you don’t complete all the tasks that completely release and protect you from these liabilities. Here’s the process you need to follow.
How to resign as a trustee:
- Check the terms of the trust deed with regard to the minimum number of trustees required at all times. If you attempt to retire leaving fewer than the required number of trustees, your departure is likely to be ineffective until a new trustee is appointed. Make sure the document recording your retirement adheres to the requirements of the trust deed.
- To ensure your retirement documentation is effective you must complete legal requirements. The documents must be signed by all trustees. This includes you, all the people continuing as trustees and all new trustees.
- If the trust owns property, complete all documents required to remove your name from the title, as individual names are recorded on titles, not the name of the trust itself. You’ll also need to ensure the documentation is completed to register the names of the new and continuing trustees on the property title.
- Check to see if there is a mortgage or a personal guarantee for trustees on any property owned. You’ll need to contact the lender and get their consent to be released from these financial obligations. Lenders often require new documents to be completed by the continuing and new trustees for this transfer to take effect.
- Further to point four, when you retire as a trustee it’s essential to get full release and protection from the lender for personal obligations. Loan documents with lenders commonly state that an independent trustee’s liability is limited to the assets of the trust. However, if you’re a family member or beneficiary of the trust, the lender may determine that you’re not independent and hold you liable for any trust borrowings. You are personally responsible to the full extent of these financial obligations unless the lender’s documents specifically limit your liability.
- Make sure the trust has an IRD number. If it doesn’t, which is quite common as many trusts don’t earn income, you’ll need to obtain one from IRD to transfer the trust property over to the new trustees.
- Update any signing authorities with the trust’s bank and make sure you’re removed from any mandates or signing authority forms.
- Write to the IRD to advise them you’re retiring as a trustee to make sure they don’t consider that you’re still liable for any tax.
- Finally, notify your local council or authority that you have retired as a trustee. If you don’t, they will assume you’re still personally liable for property rates.
This may look like a lot of paperwork, and you may meet resistance or delays in getting it done, but completing all of these steps will protect you from personal liability. If you’re unsure about how to do anything, or have unique circumstances not covered in the above, speak to our trust lawyers before you take any action.