What liabilities do I have as a beneficiary of a Trust?

Question from Gayna Vetter updated on 6th December 2007:

Suppose you inherit a trust set up to assist a family member who is receiving a house and furnishings owned by the trust and pays a nominal rental. This inheritance is an investment of sorts but has some awkward possibilities. What is the liability of inheritors of a trust such as this supposing the tenant, who the trust was set up to support with the trust-owned home, becomes unable to pay rent & the other inheritors wish to support the the tenant? Is there a way, as an inheritor, to protect yourself from a possible irresponsible tenant in this case?

Our expert responded:

Firstly, you cannot 'inherit' a trust in the way that you are referring to - either you are a beneficiary of the trust, or not. Ultimately, any liability sits with whoever are the Trustees of the Trust are. Their job is to manage the assets of the trust to the best of their abilities, as a prudent person might do, and ensure that they operate in the best interests of all of the beneficiaries. In looking to discharge their obligations, the trustees will need to take into account all of the beneficiaries, not just one. In this case, should the beneficiary living in the house be unable to make rent payments, yet the trust was primarily set up to look after this beneficiary, then it may be that after considering the wishes of the settler of the trust, that the Trustees no longer require the beneficiary to make rent payments and pass the appropriate resolutions to action this. Regardless, there is no liability for any of the other beneficiaries - this sits with the trustees. In a case such as this, I would advise that you take advice from a specialist trust solicitor to ensure the right actions are taken, especially if you are a trustee.

Recommended reading:
Trusts - A Kiwi Sham By Mark Maxwell $29.95
A NZ Guide to Family Trusts By Martin Hawes $29.95

Kenina Court is a director of Acorn Solutions Limited, an accounting firm dedicated to working with clients to help them create wealth. She is an avid property investor, entrepreneur and seminar presenter on asset protection and wealth strategies.



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