Trustee Indemnity Limits
1. Introduction to Trustee Indemnity
Trustee indemnity refers to the right of a trustee to be reimbursed from the trust property for expenses properly incurred while administering the trust. Trustees are expected to act prudently, but they are also entitled to protection against personal loss.
Key Principles:
Trustees are not personally liable for expenses incurred in good faith.
Indemnity is limited to acts within the scope of the trust and reasonable costs.
Trustees cannot claim indemnity for breaches of trust, negligence, or fraudulent acts.
2. Scope of Trustee Indemnity
A. When Indemnity is Available
Costs incurred bona fide in carrying out the trust duties.
Expenses necessary for the protection of trust property.
Professional fees if trustees act as professionals or seek expert advice.
B. When Indemnity is Limited or Denied
Breach of trust (fraud, negligence, or misconduct).
Unauthorized acts outside the terms of the trust.
Personal or private expenses unrelated to trust administration.
3. Key Case Laws on Trustee Indemnity
1. Re Whiteley (1886) 33 Ch D 347
Trustees must exercise reasonable care in managing investments.
Indemnity is allowed only for acts done prudently.
Loss due to negligent investment cannot be claimed from the trust fund.
2. Speight v Gaunt (1883) 22 Ch D 727
Trustees using ordinary care and diligence are protected.
Trustees who employ agents (e.g., brokers) in good faith are entitled to indemnity even if agents make errors.
3. In re Duke of Norfolk’s Settlement Trusts (1982) 1 WLR 123
Trustees are entitled to professional advice and can recover fees from the trust.
Limitation: indemnity covers only reasonable expenses directly related to trust administration.
4. Re Mulligan’s Settlement (1900)
Trustees cannot claim indemnity for losses due to breach of trust or negligence.
Reinforces that indemnity protects trustees for proper administration, not errors in judgment.
5. Boardman v Phipps (1967) 2 AC 46
Trustees or fiduciaries acting honestly but profitably may be liable to account for profits, even if indemnity covers costs.
Distinction: indemnity covers costs, not unauthorized personal gains.
6. Re Brogden (1936) Ch 49
Trustees are entitled to full indemnity if expenses are incurred in good faith to preserve trust assets, e.g., legal costs defending trust property.
Indemnity cannot cover acts done beyond the authority of the trust instrument.
4. Statutory Basis (Optional)
Trustee Act 2000 (UK): Gives trustees statutory power to incur expenses and be indemnified from trust property.
Indian Trusts Act 1882 (Sec 79-81): Trustees can be indemnified against losses and costs incurred in the proper administration of the trust.
5. Summary Table: Trustee Indemnity Limits
| Principle | Details | Case Law |
|---|---|---|
| Indemnity for proper acts | Trustees can recover reasonable costs incurred in administering trust | Re Whiteley (1886) |
| Protection for use of agents | Employing agents with ordinary care is indemnifiable | Speight v Gaunt (1883) |
| Professional advice | Fees for expert/professional advice recoverable | Re Duke of Norfolk (1982) |
| No indemnity for negligence | Loss due to breach of duty or care is not indemnifiable | Re Mulligan (1900) |
| No cover for personal gains | Indemnity does not cover profits made outside trust authority | Boardman v Phipps (1967) |
| Legal costs defending trust | Trustees can recover costs for defending trust property | Re Brogden (1936) |
6. Practical Takeaways
Trustees are protected but not immune; they must act prudently.
Indemnity applies only for proper administration of trust duties.
Professional fees and legal expenses are recoverable if reasonable and trust-related.
Misconduct, negligence, or unauthorized acts are excluded from indemnity.
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