TALKING TRUSTS: JOHN & TOM
By Tammy McLeod
John’s friend, Tom, was an old university friend. They had been to the same student hostel together and remained friends over the last twenty years. Although now, their lifestyles were vastly different – John had settled down, got married and had three small children. Tom was still the quintessential playboy, a different girlfriend every few months, numerous holidays and still lacking in any kind of responsibility. John was therefore surprised when Tom approached him to become a trustee of his trust.
The trust was going to be purchasing a commercial property. Tom had recently inherited some money from his father and thought that commercial property would be a good investment. The building the trust was buying was the only asset it was going to own. Tom had never purchased a home to live in and was still renting – he seemed to spend all his money on holidays and going out.
John agreed to become trustee of Tom’s trust. He didn’t meet with Tom’s lawyer or accountant, just signed the numerous documents Tom gave him to sign, which included an application for an IRD number and GST number for the trust. John didn’t get copies of the documents and while he knew that the commercial building was tenanted he didn’t hear much from Tom in relation to the building or the trust. In fact, they had no trustee meetings and the only thing John did in relation to the trust was sign financial accounts once a year.
John was hugely surprised then to one day find a letter from Inland Revenue in his letterbox. It was in relation to GST payable for Tom’s trust. It seemed that the trust had not been paying any GST on the rent it was receiving for the past 18 months. Inland Revenue was writing to John because as a co-trustee he was liable for payment of the GST as well as interest and penalties. John tried calling Tom leaving message after message for him. He then rang the number on the letter from Inland Revenue to find out what had been going on.
Inland Revenue told John that no GST returns had been filed in 18 months and as a trustee he was personally liable. It didn’t matter that it was actually a trust to benefit Tom and it also didn’t matter that Tom was a co-trustee. Trustee liability is personal and so Inland Revenue was quite within its rights to demand payment of the GST and associated penalties and interest from John.
John’s next phone call was to his lawyer. John had learned the hard way that trusteeships should often be left to the professionals.