Trustee’s Compensation and Right of Indemnity

Trustee’s Compensation and Right of Indemnity

Terms:


Indemnity/indemnification:
A legal exemption from penalties or liabilities incurred by one’s actions.


A trustee is entitled to reasonable compensation for her services. The amount payable can either come from the trust agreement itself or be fixed by the court (taking into account the trustee’s skill level and actual duties performed) or state statute. The trustee is under no obligation to accept the compensation offered. Rather, the trustee can waive compensation. If a trustee is guilty of breach of trust, she could forfeit any previously allowable compensation. See, e.g., In re Johnston’s Estate, 14 A.2d 469 (N.J. 1941).

Additionally, the trustee is entitled to indemnification (i.e., exemption from liabilities) for any loss if the trustee acted within the scope of her appointment and exercised the proper reasonable care in administering the trust assets.

EXAMPLE: Robin is the trustee for a trust that contains a rental property. In overseeing the trust assets Robin employs several people at the building who manage the property on a day-to-day basis. In addition, she regularly inspects the property herself and keeps close tabs on the workings of the building. One day a tenant is injured in the lobby of the building. The tenant sues the building, claiming that management was negligent in maintaining the property. If the tenant also wants to sue Robin as the trustee, she would not be personally liable for any damages, since she acted within the scope of her appointment by properly supervising the actions of the building’s employees and did not breach the trust duty. The trust would have to pay out any damages awarded as a result of the lawsuit.