Indemnities for trustees and applying for a Beddoe Order
A trustee is entitled to a level of protection in respect of the costs they incur and the decisions that they make when carrying out their role. This is usually referred to as an “indemnity”.
Types of indemnity
Indemnities for trustees fall into two main types:
- A general indemnity, usually relating to
- Expenses that have been correctly incurred on behalf of the trust.
- Expenses that have been correctly incurred by trustees in discharging their duties.
- Expenses that the trust would otherwise have had to pay (administration costs, taxes, contractual liabilities, etc).
It is important to bear in mind that the indemnity only extends to “correctly” incurred costs. If a trustee is ever in doubt as to whether a cost or expense can be discharged from a trust fund, they should seek advice. Generally, a trustee will need to establish that there was a legitimate reason for the expense to be paid by the trust.
- A broader, contractual indemnity, which provides former trustees with a level of protection, even after they have retired from their role as trustee.
Careful consideration should be given to the precise terms of the indemnity offered to a retiring trustee. It is often sensible to have a lawyer draft the indemnity on behalf of the old and new trustees. The indemnity should provide the retiring trustee with the same level of protection they would have enjoyed, had they remained in their role. The level of protection will generally only extend as far as the value of the trust.
Trustees should be aware that is some circumstances they may incur a personal liability should the trust not provide sufficient indemnity. Because of this potential liability, trustees often obtain a trustee indemnity insurance policy, to protect them from personal liability for negligence and breach of duty. Generally, these policies do not cover a criminal or “reckless” breach of duty.
Beddoe Orders
In some circumstances, a trustee may wish to obtain court authority to undertake a certain course of action.
In these circumstances a Beddoe Order can be applied for. This type of court order can authorise or indemnify a trustee in respect of:
- Incurring legal costs to be paid by the trust.
- Undertaking or defending any form of litigation involving the trust. This often includes confirmation that any adverse cost order made against the trustees can be paid by the trust.
- Distributing the trust’s funds where there is a dispute.
- Not distributing the trust’s funds, against the beneficiaries’ wishes, where it is deemed to be in the best interest of the trust or the beneficiaries.
However, a trustee should not treat a Beddoe Order as a “Get Out of Jail Free” card, particularly where the trust has limited resources. Caution should also be exercised when seeking the court’s approval of minor or inconsequential decisions.
A Beddoe application should be carefully drafted by a specialist lawyer to ensure that its contents adequately protect the trustees and do not adversely affect the main litigation.
