Whilst Trusts are often set up with a clear intention to its purpose, it is possible for a Trust to be challenged or become involved in a dispute. It is inevitable that any Trustee of that Trust in dispute will become involved to some extent. It is then expected that the Trustee will seek to obtain legal advice in respect of the dispute and their role and at this point, the Trustee will wish for their legal fees to be borne by the Trust. Whilst most Trustees expect the position is for the Trust to cover their legal fees, this is not always the case.
Legal costs in a Trust dispute – The laws
Section 31(1) of the Trustee Act 2000 allows Trustees to be reimbursed from the Trust for any expenses properly incurred within their role as a Trustee. This will include their legal fees, so long as these are properly incurred. This position is re-affirmed in Practice Direction 46 (1.1) of the CPR which further explains properly incurred costs are when a Trustee acts reasonably and in the best interests of the Trust, not for their own benefit.
The case of Alsop Wilkinson v Neary further defined what position a Trustee should take in response to a trust dispute, in order to be considered as acting reasonably and in the Trust’s benefit. It was held a Trustee’s duty is to remain neutral and avoid taking an active role in defending any claim, as this may be deemed to be acting in their sole interest. If a Trustee does not adopt this neutral stance there is a real risk they may be held personally liable for their own legal costs.
Trustees may also be liable for their own legal costs when the claim revolves around a beneficiary making a claim in respect of the Trustees’ actions. This is on the basis the action is personal and the Trustees are defending their actions as opposed to the Trust’s terms.
There are some Trust disputes whereby the beneficiary’s, as parties making the claim, may also have their legal costs covered by the Trust. These cases tend to be deemed as “friendly”, which is essentially where there is no real dispute but instead the Court is asked to clarify terms of the given Trust.
It should also be noted that legal costs allowed may be reduced if assessed. On which basis, the Trustee may be expected to meet any shortfall due to their legal representative.
How Nelsons can help
Stuart Parris is a Trainee Solicitor at Nelsons.
If you are a Trustee of a Trust which is involved in a dispute, please do not hesitate to contact a member of our Dispute Resolution team who will be happy to assist.