This book is only available in PDF format

Authors: Jeff Kenny, Jared Ormsby
Published: 3 July 2024
Pages: 31

Introduction

The trustee’s indemnity is considered a “core” feature of a trust.

The reason for this is that a trustee is personally liable for liabilities the trustee incurs in carrying out the trust. However a trust is carried out for the benefit of the beneficiaries ‒ not the trustee. Therefore, it is wrong to expect a trustee’s private wealth to be used to pay trust liabilities. Instead, it is the beneficiaries who should bear the burden of trust liabilities.

As a result, the Courts developed a principle under which a trustee is entitled to an indemnity and “equitable lien” (proprietary interest) against the trust property. This indemnity trumps the interests of the beneficiaries in the trust property.

A trustee indemnity cannot be “contracted away” by the trust instrument as otherwise no one would want to be a trustee.

A trustee’s indemnity, and the proprietary interest that comes with it, are also important to the trustee’s creditors. An unsecured creditor of a trustee does not have direct access to the trust property. A creditor can be subrogated to the trustee’s right of indemnity and proprietary interest. Therefore, a trustee’s creditor can sometimes access trust property that way. (continued...)

Content outline

• Trustee indemnity - a helicopter view
• Trustee indemnity - the vibe
• Equity Trust (Jersey) Ltd v Halabi and ITG Ltd v Fort Trustees Ltd
• Trustee insolvency
• Loss of indemnity and creditors - reform in s 86 of the Trusts Act 2019