Becoming a Trustee of a Charitable Trust is often seen as a positive, community-minded role. Many Trustees step into the position out of goodwill, not realising that becoming a Trustee also carries legal responsibilities and potential personal risk.
A common question we hear is this: “If something goes wrong with the Trust, can I be held personally liable as a Trustee?”
The short answer is “Yes”; however the good news is that with proper governance and advice, that risk can usually be managed.
What Is a Charitable Trust?
A Charitable Trust is a legal structure used to hold, manage and apply property or funds exclusive for charitable purposes. This may include for purposes that advance education or religion, that are for relief of poverty, for Māori or Kaupapa-based charitable purposes, for environmental protection, among other community focused purposes.
In New Zealand, Charitable Trusts commonly have an incorporated board under the Charitable Trusts Act 1957 (via the Companies Office) and may also be a registered charity under the Charities Act 2005 (via the Charities Service).
Trustees are the people legally responsible for managing the Trust, and ensuring it operates in accordance with its charitable purposes, and with other relevant laws.
Being a Trustee: It’s Not Just a Title
Although many trustees take on the role voluntarily, it is far from a ceremonial position. Trustees are expected to be active and engaged in the governance of the trust. This includes managing trust assets, making decisions in the best interests of the trust, ensuring funds are used appropriately, and complying with the trust deed and all relevant legislation.
In practical terms, trustees are responsible for the direction and integrity of the trust. Even where decisions are made collectively, each trustee carries responsibility for ensuring those decisions are sound.
When is a Trustee personally liable?
Breach of Trust or Fiduciary Duty
Trustees can be personally liable if they:
- Act outside the powers of the Trust deed;
- Use Trust funds improperly;
- Act for personal benefit; or
- Fail to act in the best interests of the Trust.
Even well-intentioned decisions can amount to a breach if Trustees fail to follow the Trust deed or the law.
Negligence or Lack of Care
Trustees are expected to act with reasonable care, diligence, and skill. Personal liability may arise where Trustees:
- Fail to oversee finances properly;
- Ignore warning signs of mismanagement; or
- Do not take reasonable steps to keep themselves informed.
“Volunteer” status is not a defence if Trustees fall below the required standard. If a Trustee has a special skill or knowledge, they may be held to a higher standard and required to act in a manner that would be reasonable for a person with that special skill or knowledge.
Contractual Liability
If a Charitable Trust board is not incorporated under the Charitable Trusts Act 1957, the Trust is not a separate legal entity in the same way a company is.
This means that whenever the Trust enters into a contract, the Trustees are doing so personally. If the Trust is unable to meet those obligations, the Trustees may be held personally liable. Trustees should seek legal advice before entering a contract to ensure they understand both the Trust and Trustee liability.
Employment Obligations
If a Charitable Trust employs people to help operate the Trust, the Trust must also comply with employment law. As with contractual liability, if the Trust board is not incorporated under the Charitable Trusts Act 1957, the Trustees may be liable where employment law is breached. Before a Trust employs anyone, the Trustees should seek legal advice from an employment lawyer.
Regulatory and Statutory Breaches
Trustees may also face personal consequences for breaches under other legislation such as Health and Safety at Work, the Income Tax Act, or failure to meet Charities Act reporting obligations if a registered charity.
How Can Trustees Protect Themselves?
Trustee Liability Clauses
Liability can be limited to the Trust assets through limitation of liability clauses in contracts, however a Trustee cannot contract out of loss as a result of gross negligence, wilful misconduct or dishonesty.
Indemnity Clauses in the Trust Deed
Most Trust deeds include indemnity provisions allowing Trustees to be indemnified out of Trust assets for liabilities properly incurred. As with trustee limitation clauses, indemnities do not cover gross negligence, wilful misconduct, or dishonesty, and issues may arise if the Trust assets are not sufficient to cover the liability.
Trustee Liability Insurance
Liability insurance may be an option to provide protection for Trustees of a Charitable Trust, however insurance should never be seen as a substitute for good governance. We recommend you seek advice from a suitable qualified financial advisor as to what insurance options are available for the Trust.
Incorporated Trustee Structures
Incorporating the board of a Charitable Trust will provide some protection from personal liability of Trustees. This structure can significantly reduce risk, but the Trust must still be established, managed and maintained correctly.
Good Governance Is the Best Protection
Trustees are best placed to mitigate their personal risk by:
- Understanding the Trust deed;
- Keeping accurate records and minutes;
- Seeking professional advice when required;
- Managing conflicts of interest; and
- Staying on top of compliance obligations.
Final Thoughts
Trustees of Charitable Trusts play a vital role in community initiatives throughout New Zealand, and it is a great way to give back your local community. Trustees may be held personally liable, however the key to reducing this risk is awareness, structure, and proactive governance.
Being a Trustee is a position of Trust in every sense of the word. When approached carefully, it can be both rewarding and safe.
Checketts McKay Law actively supports community initiatives throughout Central Otago. As your local supporters, Checketts McKay Law is committed to helping Charitable Trusts and Trustees navigate their responsibilities with confidence, clarity, and care.
By Becky Ensor, Director
April, 2026