NO INDEMNITY FOR WOUND-UP CORPORATE TRUSTEE, SAYS COURT

In a recent case, the Federal Court held that the basic principle that a trustee is entitled to be indemnified out of trust property for liabilities incurred in administering the trust does not apply to a corporate trustee in relation to expenses incurred after it has been wound-up and at which time it merely becomes a bare trustee in relation to the assets comprising the trust fund. In this case, the corporate trustee had sought to be indemnified for expenses it had incurred in litigation it pursued against the Commissioner after it had been wound-up.

TIP: Trustees that act within their powers would generally be indemnified. This protection, however, is jeopardised should trustees start to act outside their remit. But nevertheless, if a trust is in financial trouble, and even though the trustee may be conducting its duties accordingly, it may find it difficult to be indemnified out of trust assets that are diminished.