INDEMNITIES AND RELEASES FOR TRUSTEES - Personal Liability - Part I
Perhaps one of the more frightening aspects of being a trustee is the fact that the risk of personal liability is "an incident of the office of trustee". His Honour Justice Cullity wrote a leading article on this topic, entitled "Personal Liability of Trustees and Rights of Indemnification" (1997), 16 E.T.J. 115. Given the personal consequences attached to the position of trustee, some consideration must be given to the nature and extent of the releases and rights of indemnification that may be available to a trustee.
Usually these issues are considered at the final stage of an estate administration, when the trustee is dealing with the distribution and winding up of the assets of the estate or trust. In this Blog series on this topic, we will attempt to briefly review some of the substantive and practical issues relating to the whole question of rights of indemnity and releases for trustees.
In order to properly determine just what a trustee should receive in the form of a release, acknowledgement or indemnity, some consideration must be given to specifically the nature and extent of the obligations and liabilities that are expected of the trustee when he or she takes on the role. In short, a trustee is a fiduciary and, as such, his or her fiduciary obligations are owed to beneficiaries, and in some circumstances, to third parties as well.
Given this, the whole question of what a trustee can expect in the form of an acknowledgement, release or indemnity, is a difficult one. Presumably, the trustee's rights of indemnification out of the trust property arise as a result of the fact that the trustee merely holds the legal title to the property and does not hold the beneficial interest in the property.
In terms of a trustee's liability to beneficiaries, generally speaking, a trustee must act in accordance with the terms of the trust instrument and must adhere closely to the fiduciary standards expected of a trustee. If he or she does not, a claim for breach of trust can give rise to personal liability to the beneficiaries. An early issue to be considered when defending a trustee is the whole question of the impact of the trust document itself. For example, a trust document may or may not include exculpatory provisions that appear to absolve a trustee from consequences of a breach of trust or abuse of discretion. There is, however, always a risk that a court will construe any escape or exculpatory provision strictly and will hold it unenforceable as a protection for the trustee. There is against repugnant to the fiduciaries and a trustee if the right circumstances exist. Again, Justice Cullity has written an important article on the topic, called "Trustees' Duties, Powers and Discretions - Exercising Discretionary Powers", [1980] Special Lectures of the Law Society of Upper Canada, at p. 19-21. Suzana has also written an article on this topic, entitled "Revisiting a Trustee's Right to Indemnification" (2003), 50 E.T.R. (2d) 161.
We will be exploring this issue further this week, and we hope to consider other aspects of the onerous liability of Trustees, personal as it is. All the best, Suzana and Ian. --------
