Legal Memorandum: Trustee's Right of Indemnity against the Trust

Issue: Under New York law, is a trust permitted to indemnify its trustee?

Area of Law: Estate Planning & Probate
Keywords: Indemnification; Trustee acting in "good faith"; Intentional acts, willful misconduct, or bad faith
Jurisdiction: New York
Cited Cases: 11 N.Y.S.2d 212; 243 N.Y.S. 366; 461 N.Y.S.2d 746; 115 N.Y.S.2d 278; 731 N.E.2d 577; 709 N.Y.S.2d 861; 280 A.D. 482; 448 N.E.2d 413; 98 N.Y.S.2d 69
Cited Statutes: Restatement (Second) of Trusts § 222(2) (1959)
Date: 10/01/2009

New York courts established that a trustee acting in “good faith” and exercising the “degree of care and prudence which the law requires of them” is immune from personal liability.  Estate of Lathers, 137 Misc. 226, 234, 243 N.Y.S. 366, 376 (Sur. Ct. 1930).  If the trustee has acted without personal fault it is “only equitable that the trust estate should bear the loss.”  Id., 137 Misc. at 233.  The Lathers court cited Benett v. Wyndham (4 De G., F. & J. 259) for the rule that “if a trustee in the ordinary course of management of a testator’s estate either by himself or his agent, does some act whereby some third person is injured, and that third person recovers damages against the trustee in an action for tort, the trustee, if he has acted with due diligence and reasonably, is entitled to be indemnified out of his testator’s estate.”  Id. at 231.

The court noted that the English rule that prohibits “a cause of action against a trustee under a will, or the like, as such, for his torts or those of his servants in the affairs or administration of the trust. He has to be sued individually; but the reason is purely technical and the courts allow the judgment against him individually for damages to be paid out of the trust funds, if he was free from willful misconduct.”  Id.  The Lathers court adopted this rule.  Id. at 234 (citing Kellogg v. Church Charity Found., […]

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