Insight

Legal protections for trustees

Summary 

  • The office of a trustee is a personal one and personal liability can arise
  • Costs orders can be made against a trustee personally
  • Trustees and personal representatives of an estate can obtain protection by way of a full indemnity for costs in bringing or defending court proceedings
  • Such protection is obtained by making a Re Beddoe application

 Problems that arise for Trustees

A trustee has a duty to act in the best interests of the trust at all times and for the most part no problems arise.  However there are occasions when trustees become involved in disputes or disagreements with third parties where a resolution of the dispute is not always easily found, and litigation can then ensue.  In such a case it is important for the trustee to be protected against any personal liability that could arise.

In discharging the duties of a trustee it may be necessary to issue proceedings against a third party or to defend proceedings, and in such a case the trustee needs to be protected against the possibility of an order for costs against him or her personally particularly in the event that the Court finds against the trustee.

The Courts’ Protection

In a case that came before the Court in 1893 (Re Beddoe (1893) 1CH547) it was held that an application could be made, separate to any proceedings elsewhere, to the Chancery Division of the High Court for Directions, first to either take or defend proceedings, and secondly to provide that the costs of so doing could be taken from the trust.  Without such a sanction the Court made it clear that a trustee involving himself or herself in litigation either prosecutes or defends the action at their own risk as to costs whether or not appropriate advice was taken.

In the Re Beddoe application, as it is known, the trustee seeks a full indemnity for the costs in either bringing or defending proceedings, as this will provide the trustee with the protection desired provided that the trustee acts properly and reasonably throughout.

The advantage of such an application is extended to all trustees and personal representatives of estates and is of great benefit to trustees who seek in difficult circumstances to discharge their obligations to their respective trusts and beneficiaries.

When to make such an Application

CPR 64 does not stipulate the time when a Re Beddoe application can be made, but clearly it is preferable that directions are sought before proceedings are commenced, or, if it is feasible to do so, before a defence to proceedings is served to give the Court the opportunity of considering all the surrounding circumstances and giving such directions which in its absolute discretion the Court considers appropriate.

There has to be a good reason for seeking the sanction of the Court and the Court will not be enthusiastic to consider a case where a significant expenditure has already been incurred, although, depending upon the circumstances in which the trustee finds himself, the Court might be persuaded to exercise its discretion in his favour.

The application is not open to a dispute with beneficiaries under the trust, but otherwise this facility is open in all trust and third party disputes.

The procedure to be adopted

A Re Beddoe application must be made in separate proceedings under Part 8 supported by a Witness Statement setting out all the facts and circumstances which led the trustee to seek the sanction of the Court.  Usually it is the trustee who makes the application, but it is possible that another interested party such as the beneficiary might do so.  Bearing in mind that the beneficiaries to a trust are interested parties and might wish to intimate their wishes to the Court, the proceedings should be served on each of them.

Once all the evidence is made available, the matter will be placed before the Chancery Master for a decision.

The Cost of the Application

The costs are always in the discretion of the Court, and invariably the application, if successful, will be followed by an order for the costs in connection with the application to be paid by the trust and for the trustee to be given an indemnity as to any further costs involved.

The Court will be concerned to see that the trustee has acted reasonably in all respects and that the costs have been properly incurred.

The Risks Involved

A Re Beddoe Order is not always successful, but the Court being mindful of the circumstances has a wide ranging discretion as to how to deal with the question of costs where an application has failed, and the Court could conclude that the application, even if not successful, was warranted and give protection to the Trustee accordingly.

The corollary of failing to apply for a Re Beddoe Order is that the Trustee will be placed in a situation where he/she cannot claim costs from the Trust, but, bearing in mind the obligations of the trustees and the high level of litigation costs which could be a serious problem for the trustee, often does make an order to assist the trustee.  Making the application promptly is always advisable.

For You

Our Private Client Department has specialist lawyers ready and willing to advise on all aspects of Trusts and Estate Management, and a separate department for Wealth Management of Estates or where there are assets abroad and in addition we can give specialist advice on this important aspect of protecting Trustees involved in discharging their obligations to their respective Trusts.

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