Indemnity of Executor Costs

The trustee or executor of a deceased estate generally has a right to be indemnified for their properly incurred costs out of the estate. These are costs they incur in their role as executor and/or trustee during the administration and distribution of the deceased estate, including any legal fees and out of pocket expenses they pay or incur in their role as executor. This article deals with when an executor is and is not entitled to be indemnified for their costs.

What is “properly incurred”?

Whether or not expenses can be said to have been “properly incurred” is determined in each individual case on the particular facts. In a Victorian case of Howden v Rackstraw [2020] VSC 315, McMillan J maintained the position that an executor is entitled as of a right to be reimbursed or indemnified out of the trust (ie estate) for any properly incurred costs; however, they are not entitled to be indemnified for improperly incurred costs. The court considered what costs would be improperly incurred. This included acting beyond your power as executor, acting in bad faith or exercising power ‘with an absence of care and diligence that a person of ordinary prudence should exercise’.

The onus is on the person trying to deny an executor their right of indemnity for costs, to prove that the costs are improperly incurred and should not be reimbursed or paid from the estate.

Other case law has confirmed this position. In the case of Re Jones; Christmas v Jones [1894 J 275] the court held that an executor’s costs had not been properly incurred where they were incurred in defending a claim against the executor, which had been properly brought. This means that where a beneficiary has to bring an action against an executor because they have breached their duties (eg. by failing to communicate with beneficiaries), the implied indemnity of executor’s costs will not apply and the executor may have to bear the costs of defending the action personally, rather than these costs being paid from the estate.

In the more recent case of Longworth v Allen [2005] SASC 469 this decision from Re Jones was upheld and a personal costs order was again made against the executor after a beneficiary was forced to bring an action against the executor after they failed to respond to the beneficiary’s requests in a timely fashion, failed to provide accounts and attempted to force the beneficiary to sign an indemnity to receive her share of the estate.

Legislation related to executor costs

The South Australian Legislation which provides for the indemnity executor costs is section 35(2) of the Trustee Act 1936 (SA). The Victorian Legislation which provides for the indemnity of executor costs is section 36(2) of the Trustee Act 1958 (Vic). Both of these provisions state the following:

A trustee may reimburse himself, or pay or discharge out of the trust premises, all expenses incurred in or about the execution of his trusts or powers.

In Queensland, the implied indemnity can be found in the Trusts Act 1973 (Qld) at Section 71. This Section states as follows:

A trustee shall be chargeable only for money and securities actually received by the trustee, notwithstanding the trustee signing any receipt for the sake of conformity; and shall be answerable and accountable only for the trustee’s own acts, receipts, neglects or defaults, and not for those of any other trustee, nor those of any financial institution, broker or other person with whom any trust money or securities may be deposited, nor for the insufficiency or deficiency of any securities, nor for any other loss, unless the insufficiency, deficiency or loss occurs through the trustee’s own default.

New South Wales also has a similar section related to the implied indemnity of executors and trustees at Section 59 of the Trustee Act 1925 (NSW).

Seek legal advice

If you are involved in the administration of a deceased estate and you have any questions about costs incurred as an executor, an executor’s implied indemnity or what expenses would be considered “reasonably incurred” versus “improperly incurred”, please do not hesitate to contact Armstrong Legal.

If you require legal advice or representation in relation to any legal matter please contact Armstrong Legal..