Trustees have a general right of indemnity under the Trustees Act 2000, which provides that any costs incurred appropriately and reasonably by the Trustee can be met out of the trust funds. This right of indemnity extends not only to the Trustee’s legal fees but also to any costs order which a court might make against the Trustee.
However, indemnity can be denied to Trustees
If a trustee is found to have acted improperly or unreasonably in bringing or defending proceedings, they may be denied indemnity. It is crucial for Trustees to seek advice before becoming embroiled in any costly dispute or litigation.
Amongst the various duties of Trustees, they must preserve the trust assets, and the decision to incur legal costs is not always easy for Trustees.
Where there is a risk that indemnity could be denied to the Trustee, an Application to the Court should ideally be made for permission and approval to take the intended step and to incur the associated costs. Such applications are commonly known as Beddoe Applications or Part 64 Applications, and they provide a means of cost protection for Trustees.
In summary
Trustee legal costs can be paid from the trust funds if the court believes they acted properly. However, if their actions are considered improper, trustees may have to pay the costs themselves. This is why it is important for trustees to seek advice at the earliest stage of a dispute to avoid financial risk.