Trustee exoneration from trust assets - Out on a limb? The tension between creditor expectations and the 'clear accounts' rule

Publication Type:
Journal Article
Journal of Equity, 2018, 12 pp. 58 - 58
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This article examines the proper characterisation of the trustee’s right of indemnity with particular focus upon the exoneration limb, pursuant to which a trustee can discharge outstanding trust liabilities directly from trust assets. Its existence is uncontroversial. However, questions have been raised as to whether the exoneration limb should be subject to the so-called ‘clear accounts rule’ which limits a trustee from availing itself of the right to indemnity to the extent that the trustee has an outstanding obligation to restore the trust fund. This limitation upon the availability of the indemnity to the trustee necessarily affects the ability of creditors to access trust assets to discharge trust debts. This is because the creditor’s right to be subrogated to the trustee’s indemnity gives it no higher right than the trustee has — if the indemnity has been lost to the trustee, it is lost to the creditor. This article considers the justification for the clear accounts rule with respect to its application to the exoneration limb of the indemnity.
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