Estate Planning

Protecting a Trustee from Liability (Part IV)

By Hull & Hull LLP

Today's blog will continue my series this week on protecting trustees from potential liability.

A trustee may incur personal liability arising from his or her administration of the trust. The provision or existence of a release and/or indemnification in favor of the trustee may protect, limit or exonerate the trustee from liability.

With respect to a trustee's accounts (accounting) for the administration, releases may be sought by the trustee and provided by the beneficiaries in conjunction with a Court order passing the accounts.   Alternatively, the beneficiaries may provide the trustee with a release in lieu of compelling the trustee to pass his or her accounts in Court. Amongst other considerations, when seeking a release from the beneficiary, a copy of the accounts should be provided, either in an informal format or formal format, for the beneficiary's benefit.  

A trustee may also incur personal liability in tort, in contract, or under statute within the context of administering a trust. If the terms of the trust do not provide for an indemnification of such liabilities, the trustee should consider the nature and extent of the indemnification necessary, whether out of the trust, or possibly the estate property, or from the beneficiaries. It may also be that the trustee may need to obtain a release or indemnification from third parties (perhaps third parties who the trustee properly contracted with in respect of trust assets).

Beneficiaries and/or third parties may agree by way of a release, deed or agreement to the indemnification of the outgoing and incoming trustees in respect of certain liabilities of the trust.

Releases may be sought and provided by beneficiaries in respect of a certain transaction or actions on the part of the trustee.

If the parties cannot agree upon an appropriate indemnification of the trustee, an Order of the Court may be necessary to afford the trustee with protection.

Thanks for reading, Craig.

Full post as published by Toronto Estate Law Blog on March 12, 2009 (boomark / email).