The general position is that all trustees of a discretionary or unit trust are liable for the debts of the trust. Specifically, if the assets of the trust are insufficient to meet the debts of trust then the assets of the trustee (be they a person or a corporate entity) can be claimed against by the creditors of the trust.
There are however, two (2) potential exceptions to this general rule:
Exception 1: The Gordon v Campbell exception:
In this case the UK High Court held that a trustee could avoid liability where the trustee states, when they enter into a contract on behalf of the trust for which they are trustee, that they enter ‘as trustee only’. In other words they contract out of personal liability with a creditor.
Exception 2: The Victorian, West Australian and Tasmanian exception:
The general position as to a trustee’s liability for a trust’s debts can be found in the various trustee legislation of each State and Territory.
However appears that it may be possible, that under the respective trustee legislation of Victoria, Western Australia and Tasmanian, to specifically remove a trustee’s obligations to indemnify the debts of a trust so that a creditor of the trust can only recover against the assets of the trust.
The above exceptions should be considered by trustees in seeking to limit their liability in acting as trustee for a trust.