The New Zealand Institute of Chartered Accountants (NZICA) has recently warned professional advisors away from acting as trustees. The reason for this warning is that the NZICA is aware of a number of cases where the Inland Revenue is seeking to recover substantial tax debts owed by a trust from a professional advisor acting as a trustee.
A number of trusts in New Zealand have professional advisors (such as lawyers and accountants) acting as independent trustees – by independent this means that person is not a beneficiary of the trust and has no personal connection or interest in the income or assets of the trust. Certainly our recommendation at Cairns Slane is that an independent trustee should be appointed as a trustee for a trust.
The appointment of an independent trustee assists in the better management and administration of the trust and assists in establishing a trust as valid and not a sham.
The NZICA’s media release however, will cause professional advisors to consider the implications of their role and liability as an independent trustee. The NZICA noted that “when a trust is not in a position to meet its tax obligations, it would seem that Inland Revenue will pursue the trustee with the deepest pockets, which will invariably be the professional trustee who has taken on the role as part of their engagement with the client. This is despite the fact that the trustee is clearly only acting in his/her professional capacity”.
As a result of these cases, the concern for NZICA is that “the likely upshot will be that professional trustees are likely to abandon their trustee positions”.
Inland Revenue had released their own media statement which appeared to have the intention of reassuring professional trustees that it was not specifically pursuing them for outstanding taxes. However Inland Revenue did note in the same statement that “a professional trustee cannot step back from the trust’s affairs and claim that they had no liability for its actions or debts. Lack of actual knowledge if the trust affairs does not remove liability, and whether or not the trustee is also a beneficiary, is also irrelevant.” Inland Revenue then went on to state that “unpaid tax is the obligation of each of the trustees. Inland Revenue will not normally seek recovery from a single trustee but from all. However, if one trustee has greater assets available to satisfy the trust’s tax debt, then it is more likely that recovery will be made from that trustee”
So, where does this leave the professional trustee? Well, we at Cairns Slane will continue to provide independent trustee services to our valued clients. And we also put great importance and take responsibility when undertaking this role. It is clear that the role of a professional trustee is not one without risks and cannot be undertaken lightly. A professional trustee has a duty to be properly involved in a trust’s affairs. We believe this will ultimately benefit the trust as proper professional involvement will ensure a high standard of trust management.