Protecting a Trustee from Liability (Part I)
A trustee, whether incoming or outgoing, needs to be aware of and consider his or her potential liability as trustee and over the administration of the trust. The trustee’s conduct may be protected, limited or exonerated by the terms of the trust, statute, an Order relieving the trustee of liability, the existence or provision of releases or indemnities, a passing of accounts, the conduct of the beneficiaries, whether indirect or direct, and/or the assistance of the Court.
My blogs this week will, to some extent, touch upon some of the ways that the potential liability of a trustee can be protected, limited or exonerated.
To begin with, a trustee, whether incoming or outgoing, ought to carefully review the terms of the trust document as the trust document may contain provisions that impact on the potential liability of the trustee.
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 directions.
Exculpatory clauses can protect the trustee by raising the level of culpability required to be found personally liable. The clause may also limit the extent of the trustee’s personal liability to the value of the assets of the trust instrument.
A trustee should be cautious, however, if he or she is relying on an exculpatory clause in a trust document to exonerate him or her from liability as such clauses can be held to be invalid, especially where they are broad, or attempt to completely exonerate any and all conduct of the trustee. While there is little Canadian caselaw on the issue, relatively speaking, commentators have suggested that the following principles might be adhered to by Canadian Courts: (a) an exculpatory clause will not excuse liability for acts of gross negligence; (b) an exculpatory clause will not excuse liability for willful defaults or intentional wrongdoing; (c) an exculpatory clause will not excuse liability for acts of fraud or dishonesty; and (d) an appropriately drafted exculpatory clause may be effective to relieve a trustee from liability for breaches of trust of lessor culpability than acts of gross negligence, intentional wrongdoing or bad faith.
Thanks for reading.
Craig.
