How far does a Trustee Liability Clause protect you?

‘Trustee liability’ is a common term thrown about in the current Trust legislative environment, though it is often misconstrued. While Trustees are the caretakers of Trust assets being held for the benefit of the beneficiaries of the Trust, they must act with the necessary skill, prudence and diligence of an accountable Trustee.  However, Trust deeds typically contain a limitation of liability and indemnity clause limiting the liability of Trustees to the assets of the Trust. This is often a relief for many Trustees, nevertheless there is a common misconception held by many Trustees of the extent of protection this indemnification provides - as a Trustee is not indemnified outright for all their actions.  

Trust deeds must not limit or exclude a Trustee’s liability or indemnify them for any breach of trust arising from the Trustee’s dishonesty, wilful misconduct, or gross negligence. The purpose of this is to ensure beneficiaries have the ability to hold Trustees personally accountable for certain misconduct.   If the trust deed indemnifies or limits the liability of Trustees to this extent, it cannot be relied upon to defend a Trustee against a claim by a beneficiary.

Furthermore, these limited liability and indemnity clauses only apply to claims by beneficiaries. Any agreements with third parties (such as banks) must include a limited liability clause for any Trustee limitation to take effect. Otherwise, Trustees may find themselves personally liable for any guarantees the trust has given.

If you find yourself concerned about your Trustee liability, contact our Trusts Team on 09 486 0177.  We are available to assist you to navigate the complex domain of Trust law.