What is a lien?
A right to keep possession of property belonging to another person until a debt owed by that person is discharged.
A trustee has the right to be indemnified against proper trust expenses out of the assets of the trust.
A trustee has a lien over the trust fund to secure their right to be indemnified.
When it is important?
In the event of:
- An appointment to a beneficiary
- A change in trustee
- An insolvent trust
- Contingent liabilities arising
- Reimbursement of costs
- Exoneration for any liabilities
- Realisation of assets
- Retention of trust fund
When a trustee enters into a contract with a third party it is personally liable on that contract unless it contains a term that excludes personal liability.
Where a trustee decides to retain trust assets, it is advisable that they record the exact terms and conditions on which they retain those assets, for the benefit of all parties
A trustee is not automatically entitled to retain the whole trust fund. If the maximum liability is known, a trustee can retain that maximum amount; if the maximum liability is unknown, a trustee should retain enough to cover an amount calculated on reasonable assumptions.
Originally published 10 June, 2020
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.