Trustees

Question 1

Can a trust fail for want of trustee?

Answer 1

No. It is a core principle that equity will not allow a trust to fail for want of a trustee.

Question 2

How may trustees are needed for trusts of land?

Answer 2

Max four.

Necessary to have a minimum of two to give good receipt.

Question 3

Can a trustee decline trusteeship?

Answer 3

Yes - it is a voluntary office. Settlor should wait to transfer legal title until it is confirmed the trustee is willing to act.

Question 4

What happens if a named trustee is unwilling or able to act?

Answer 4

Another trustee will be appointed by:

1. Using any express powers to appoint trustees found in the trust instruments
2. Using statutory powers to appoint trustees
3. By the beneficiaries exercising their Saunders v Vautier rights
4. In the case of charitable trusts, by the Charity Commission
5. By the court

Question 5

When can a statutory power to appoint a trustee be used?

Answer 5

1. On the death of trustee
2. If a trustee is abroad for over a year
3. If an appointed trustee is a minor or otherwise lacks capacity to act
4. If a trustee wishes to retire, refuses to act or is unfit to act

This power may be exercised by the persons nominated in the trust instrument to appoint trustees or if there are no such persons, by the surviving or continuing trustees.
If all the trustees have died the power is exercised by the personal representatives of the last to die.

Question 6

When can Saunders v Vautier rights be used to appoint a trustee?

Answer 6

A statutory power in s19 TLATA which gives beneficiaries with Saunders v Vautier rights the power to direct the trustees to appoint a new trustee.

Mower must be exercised in writing and cannot be exercised in cases where the trust instrument contains an express power to appoint trustees.

Question 7

When can the Court appoint a trustee?

Answer 7

If a trust would be without a trustee because there is nobody authorised who is able and willing to make the appointment, the court can make the appointment instead - extended to Charity Commission in case of charitable trusts.

Court will consider the following principles:
(1) The court should consider the wishes of the settlor or testator (if such wishes are expressed or evidenced in the trust instrument)
(2) The court should not appoint a trustee where there is a dispute between the beneficiaries as to whether that person is appropriate
(3) The court should consider whether the appointment will promote or impede the trust administration. This means the court should take into account the views of the existing trustees, but must consider whether those views are reasonable.

Question 8

What are the rules regarding the removal of trustees?

Answer 8

1. The trust instrument may contain rules dealing with removal of trustees.
2. The general statutory power to appoint trustees also effectively extends to removing trustees in the circumstances where it is considered necessary to replace them.
3. The court also has both statutory and common law powers to remove trustees.
4. The Charity Commission also has the power to remove charity trustees.

Question 9

How can a trustee voluntarily retire?

Answer 9

• Can voluntarily retire by deed;
• Where there are at least two people or one trust corporation to act as trustees; and
• The co-trustees and any person with a power to appoint trustees consents.

Question 10

How can the beneficiaries direct a trustee to retire?

Answer 10

• Beneficiaries with Saunders v Vautier rights have the power to compel a trustee to retire from the trust.
• Direction must be made in writing and requires the agreement of all beneficiaries
• Power can only be exercised if after the retirement of the trustee there will remain at least two trustees or one trust corporation

Question 11

A trust has two trustees, neither of which is a trust corporation. One of the trustees wishes to retire immediately. Can they?

Answer 11

No, another trustee needs to be appointed before the trustee can retire.

There needs to be at least two trustees or a trust corporation remaining. To exercise this power the trustees must also obtain the consent of their co-trustees and any person with a power to appoint trustees.

Question 12

Who can be a trustee?

Answer 12

An adult of sound mind.

Question 13

What are the two main types of trustee duties?

Answer 13

1. Trustee duties
   - Primary duty to comply with the terms of the trust
   - Duties to exercise their functions as trustees in accordance with prescribed standards of care and skill which are aimed at safeguarding the trust fund.
2. Fiduciary Duties
   - Duty not to create conflict between their personal interests and their duties to the beneficiaries
   - A duty not to make an unauthorised profit from their role as a trustee.

Question 14

What are the two key fiduciary duties?

Answer 14

1. No-conflict: A fiduciary must not put themselves in a position where their personal interests conflict with their duties to their principal
2. No-profit: A fiduciary must not obtain an unauthorised benefit as a result of their position as a fiduciary either for themselves or for a third party.

A fiduciary who breaches these will be liable to their principle.

Question 15

No conflict: self-dealing

Answer 15

Involved a trustee purchasing assets from the trust or selling assets to the trust - this is a conflict. Includes companies in which the trustee has a controlling share. (if has an interest not self-dealing but still conflict)

Transaction would be voidable.

Question 16

No conflict: fair-dealing

Answer 16

Involves trustee directly transacting with the beneficiary to buy their beneficial interest under the trust.

Not as stringent as self-dealing. Trustee must be able to demonstrate that the transaction was conducted fairly.

Transaction will be voidable unless trustee can demonstrate they:
- made full disclosure to the beneficiary
- acted honestly and fairly
- did not take advantage of their beneficiary

Question 17

No conflict: conflict between principals

Answer 17

no conflict rule extends to situation in which a fiduciary’s duties to one principle conflicts with their duties to another. In this case it is not possible to act entirely in the interests of both principles.

Question 18

How can a fiduciary proceed if there is a conflict?

Answer 18

• Can proceed if transaction is authorised by the instrument creating the fiduciary relationship (ie settlor authorised particular conflicts in the deed)
• If unauthorised, fiduciary must obtain fully informed consent of the principles - without it will be a breach of fiduciary duty.

Question 19

What are the consequences of a breach of fiduciary duty?

Answer 19

• If breach caused a loss to the principle, they can sue the fiduciary personally for breach of fiduciary duty. Fiduciary would be liable to compensate the principle
• Transaction would be voidable, beneficiaries may seek rescission
• If breach results in profit to beneficiary they may not require a remedy but could end fiduciary relationship. If it also results in a profit to the fiduciary the principle can recover the profit from the fiduciary

Question 20

What is the no profit rule?

Answer 20

A fiduciary must not put themselves in a position where they might be tempted to act in their own interests. If they do act in their own interests and profit there are strict rules which apply to prevent them from retaining profit.

Ways can breach:
1. Directly using the property of their principle to make a personal profit

2. Indirectly profiting from their role as a fiduciary - eg being remunerated for being a director of a company - a position they received as a result of being a trustee - should pay money into the trust
3. Exploiting an opportunity which as come to them as a result of their fiduciary position
4. Receiving a bribe or secret commission to influence the way in which they perform their role as fiduciary

Question 21

What are the remedies available for a breach of the no-profit rule?

Answer 21

1. An account of profits: This is a personal claim which requires the trustee to pay the principal an amount equivalent to the profit they have made. Good option where no asset left over which to make a claim.
2. A constructive trust: A principal may wish to argue that the profit made by the fiduciary is held on constructive trust for the principal. Two primary reasons for wanting a proprietary claim:
   - A constructive trust protects against insolvency of the fiduciary. Principal is able to identify an asset over which they have rights which ranks above other creditors.
   - A constructive trust also allows the principal to trace into any subsequent profits made by the fiduciary.

Question 22

General power of investment

Answer 22

A trustee may make any kind of investment that they could make if they were absolutely entitled to the assets of the trust.

Trustees must:
- consider the standard investment criteria
- take advice

Question 23

What is the standard investment criteria?

Answer 23

1. Suitability: trustees must consider the suitability of the proposed investments.
   General suitability: is the investment of a suitable kind?
   Specific suitability: is the particular investment suitable?
2. Diversification: Trustees must also consider the need for diversification of trust investments. Extent to which diversification is needed will depend on the size and nature of the particular trust.

Question 24

Can trustees invest based on their own/beneficiary’s ethics?

Answer 24

Broadly no - should choose investment with best financial return.

If deciding between investments which have the same return/equivalent - can take ethical views into account.

Charitable trusts: more scope eg not making investments which conflict with goals of charity/undermine their work.

Question 25

What is proper advice regarding investments?

Answer 25

Provided by a person who is reasonably believed by the trustee to be qualified to give it by their ability and practical experience of financial and other matters relating to the proposed investment.

Exception: need not seek advice if they reasonably conclude that in all the circumstances it is unnecessary to do so.

Question 26

What is the statutory duty of care for trustees?

Answer 26

Requires trustees to ‘exercise such care and skill as is reasonable in the circumstances’.

• requires assessment to take into account any special knowledge or experience that a trustee has or holds themselves out as having
• applies to professional trustees and requires the assessment to take into account the any ‘special knowledge or experience’ that it is reasonable to expect of a person acting in that capacity.

Standard of care is always higher for professional trustees because they are being paid to provide a service.

Also raised for lay trustees with a particular skill.

Question 27

What is the common law duty of care for trustees?

Answer 27

Requires trustees to exercise the standard of diligence and care expected of an ordinary prudent business person.

• Nothing inconsistent with statutory duty.

Question 28

What is the power to acquire land?

Answer 28

Trustees have a statutory power to acquire freehold or leasehold land in the UK (but not overseas).

This power may be exercised for investment purposes but also more widely (including occupation by a beneficiary).

• If acquired for investment purposes must consider standard investment criteria.
• Statutory duty of care applies to all land purchases.

Question 29

Power of Delegation

Answer 29

Trustees have broad powers of delegation, including powers of investment and powers to acquire land.

Trustees cannot delegate their investment powers except by an agreement evidenced in writing.
- Should give guidance as to hot the agent should exercise their functions ensuring they are in line with the best interests of the beneficiaries.

• Agent to whom the function is delegates is bound by any restrictions on the exercise of its investment powers in the same way the trustee would be.

Question 30

Do the trustees have any duties when selecting agents?

Answer 30

Yes, must comply with the statutory duty of care both with respect to selecting agents and entering into agreements with those agents.

Trustees should ensure:
- An appropriate agent is selected for the function
- The agreement complies with their requirements under statute
- The arrangement is reviewed regularly

If they comply with duties, will not be vicariously liable for any loss caused by the agent acting negligently.

Question 31

Can a trustee purchase land abroad?

Answer 31

No.

Question 32

What are the three circumstances in which trustees distribute property?

Answer 32

1. When they have an obligation to do so under the terms of the trust (dispositive duty)
2. When directed to do so by beneficiaries with Saunders v Vautier rights (dispositive duty)
3. In exercise of a dispositive power such as a power of appointment, maintenance or advancement (dispositive power)

Question 33

When must a trustee distribute to beneficiaries?

Answer 33

When the duty to distribute arises - trustees must distribute as soon as possible.

For income trustees will have an obligation to either:
1. Distribute the income as it arises
2. Accumulate the income

Question 34

Income rules for adults versus minors

Answer 34

Adults: must distribute as it arises (unless trust deed says otherwise) - includes beneficiaries with contingent interests which carry the intermediate income.

Minors: If a trust has minor beneficiaries, the trustees must accumulate the income that arises before they turn 18 - this is added to the capital and distributed with that capital.

Question 35

What are dispositive duties?

Answer 35

Trustees of discretionary trusts have dispositive duties.

Terms of a discretionary trust may vary but they always entail a requirement upon the trustees to exercise their discretion and distribute the trust property to such of the objects as they choose.

Discretion must be exercised within a reasonable time - this will depend on the particular trust.

Question 36

What is the statutory power of maintenance?

Answer 36

The power to pay income (including and previously accumulated income) for the maintenance, education or benefit of a minor beneficiary. Applies to:
- Vested, future interests
- Contingent interests which carry the intermediate income

Does not apply where another beneficiary has a prior interest (eg successive interest trust). Must be entitled to income.

Common uses:
- school fees or other training
- medical bills
- food, clothing and rent
- leisure and holidays

Question 37

What is the statutory power of advancement?

Answer 37

The power to pay capital for the advancement of a beneficiary whose interest has not yet vested in possession. Applies to:
- Adult and minor beneficiaries
- Vested, future interests
- Contingent interests

Requires the consent of any beneficiaries with a prior interest

Question 38

What is meant by a contingent interest which carries the intermediate income?

Answer 38

Where A has contingent interest in the capital but nobody has been given a prior interest in the income or capital.

Means while a minor can be used via power of maintenance. When 18 must pay income to A as it arises.

Question 39

Who should be paid when exercising statutory power of advancement?

Answer 39

Should not pay income directly to a minor beneficiary as a minor cannot give good receipt.

Should be paid either to the child’s parent or legal guardian or directly to the provider of the goods or services that are being acquired on behalf of the beneficiary.

Note: improper exercise of power to unquestioningly pay it to the minor’s benefit.

Question 40

Which of the following types of income can be paid using the power of maintenance?

Answer 40

Current and accumulated income.

In fact, good to think about before turning 18 because at that point any income becomes capital and they will be unable to access it.

Question 41

How much capital can be paid using the power of advancement?

Answer 41

100%.

Question 42

What should beneficiaries consider when deciding whether to exercise the power of advancement?

Answer 42

Should consider whether this action will result in the advancement or benefit of the beneficiary.

• education, career, marriage
• also avoid debts
  ‘improve material situation of the beneficiary’
• charitable purposes (but only to extent the beneficiary would have otherwise used their own resources for such purposes)

Question 43

Who should capital after exercising power of advancement be paid to?

Answer 43

Adult: can be paid directly to them but must ensure that it has been used for the requested purpose (could also purchase asset or services on the beneficiary’s behalf).

Minor: should not pay the capital directly to them as a minor cannot give good receipt. Should be paid either to child’s parent or legal guardian or directly to the provider of the goods or services that are being acquired on behalf of the beneficiary.

Question 44

Can power of advancement be exercised if there is a beneficiary with a prior interest?

Answer 44

Yes but only with the written consent of the beneficiaries with the prior interest.

Consent can only be provided by beneficiaries who are of full age and sound mind.

Question 45

What is meant by ‘bringing the payment into account’?

Answer 45

When the beneficiary becomes entitled, any payment using the power of advancement must be brought to account.

Means the amount the beneficiary received when their interest vests will be reduced proportionately to reflect the proportion of the capital that they received early.

Option to treat the share advanced as a proportionate share of the overall trust or its strict monetary value. Choice could have significant consequences for both the beneficiary who receives the advancement and all the other beneficiaries. If treated as strict monetary value (not proportionate)- could receive money at the end from interest on remaining.

Question 45

How can trustees commit a breach of trust?

Answer 45

1. Acting outside their powers (i.e. by distributing trust property to someone other than a beneficiary or making an unauthorised investment).
2. Failing to act in accordance with their duties (e.g. by falling below the standard of care expected of them when making an authorised investment or failing to properly monitor investments of the trust fund).

Question 46

What questions must be asked to establish liability for a breach of trust?

Answer 46

1. Did the trustee(s) act in accordance with their powers?
2. If so, did they comply with their trustee duties?

If no to either - there has been a breach of trust and must consider:
1. Who has breached the trust?
2. Is there anything that might exclude or limit the liability of any of the trustees?
3. What remedy should be awarded?
4. If more than one trustee is liable, how should liability be apportioned between them?

Question 47

Can a trustee be liable for breach of trust before appointment as trustee?

Answer 47

A trustee will not be liable for a breach of trust which took place before the trustee was appointed.

On appointment, if a trustee discovers that a breach of trust occurred they should commence proceedings in order to recover from the former trustee.

Failure to take such action may result in the new trustee becoming liable for their own breach.

Question 48

Can a trustee be liable for breach of trust after retirement?

Answer 48

A trustee will continue to be liable for any breaches committed during the time that they acted as a trustee even after they have retired.

A trustee will only be liable for breaches of trust that occurs after they retire in two cases:

1. where the trustee retired to facilitate the breach; or
2. The trustee parts with trust property in retiring without due regard, so loss is suffered when the property is transferred to the new trustees.

Question 49

Can trustees be excluded from liability?

Answer 49

Can include an exemption clause in the trust instrument which will exempt trustees from liability for breach of trust other than where the breach if fraudulent.

If no exemption clause, trustees may seek to rely on s 61 Trustee Act 1925. Gives the court discretion to excuse a trustee in circumstances where the trustee ‘acted honestly and reasonably and ought fairly to be excused for the breach of trust’. - Courts will not use this lightly (can be used to excuse an individual trustee while others remain liable).

Can also obtain indemnity insurance (often done by professional trustees) and insurance premiums are paid out of the trust fund as an expense of the trust. Won’t protect against fraudulent breaches.

Question 50

What is the limitation period for breaches of trust?

Answer 50

6 years from the breach - this is for beneficiaries whose interests are vested in possession.

For beneficiaries with future interests, the limitation period only starts to run when their interest vests in possession.

Limitation period does not apply to fraudulent breaches or proprietary claims against the trustee.

Question 51

What are the remedies for breach of trust?

Answer 51

• If the trustee has misapplied trust property, the beneficiaries may seek to recover the property itself (or traceable proceeds). Beneficiary may decide to make such a claim where the trustee is insolvent and/or where the substitute property has increased in value.
• If not possible/desirable to recover property make seek compensation to reflect the loss of the asset
• If a breach of trust has resulted in a loss in the value of the trust fund the beneficiaries may seek compensation
• if breach does not result in a loss, no substantive remedy (although can apply to have trustee removed).

Question 52

When is loss to a trust assessed?

Answer 52

At the date of the trial rather than date of the breach.

Question 53

What is the test for causation for breach of trust?

Answer 53

The but for test.

Question 54

Can trustees offset losses caused by a breach against profits?

Answer 54

Generally no. But possible to offset losses against profits where they arise from the same transaction or course of dealing.

Question 55

How are trustees liable for breach of trust?

Answer 55

They are jointly and severally liable for breaches of trust.

Means beneficiaries can choose who to sue and recover the full amount from any one of the trustees.

Liability can be apportioned:
If one trustee is being sued for the full amount of the loss to the trust fund, they are likely to seek a contribution from their co-trustees. A claim can be made where two or more parties are liable for the same damage - court has discretion to require one party to make a just and equitable contribution (which means contribution may not necessarily be equal between the trustees.

Rare but court can award full indemnity to one trustee to exempt then from liability.

Question 56

What is an ouster clause in a trust deed?

Answer 56

This is clause which entirely removes a duty a trustee would have otherwise had. A common one is to remove the duties that ordinarily arise when a trustee holds a majority shareholding in a company.

Question 57

What is an exemption clause in a trust deed?

Answer 57

A clause which limits or excludes trustee liability for particular sorts of breaches. This is different to an ouster clause because the duty still exists but the trustees will be protected from personal liability if they breach it.

Can exclude liability for any breach except fraud.

Question 58

What should trustees do to protect themselves against uncertainty of terms of the trust?

Answer 58

Should take legal advice, but not necessarily enough, may need to take further steps such as:

• Seeking court directions
• Applying to the High Court under s48 AJA 1985 to rely on Counsel’s opinion
• Surrendering their discretion to the court
• Obtaining beneficiary consent

Question 59

Protection of trustees: Seeking court directions

Answer 59

Probably safest option.

Court will provide guidance on the matter. Trustees who act in accordance with the directions of the court will not be liable even if there is a subsequent claim from a beneficiary.

Expensive.

Question 60

Protection of trustees: s48 AJA 1985 application

Answer 60

Step 1: Seek a written legal opinion from a person satisfying s71 Courts and Legal Services Act 1990 (usually barrister or solicitor with 10 years experience); and

Step 2: Apply for High Court authorisation to rely on that legal opinion

Cheaper as high court does not need to hear arguments (unless disputed)

Best where no disagreement just beed some clarity on the trust instrument.

Question 61

Protection of trustees: surrendering discretion to the court

Answer 61

Used where there is a deadlock between trustees or precluded from acting due to conflict, they may surrender discretion to the court.

This is an exceptional course of action and can only be sought in relation to a specific problem which requires addressing. Trustees cannot simply give up all their powers and obligations and leave the court to administer the trust on an ongoing basis.

Question 62

Protection of trustees: beneficiary consent

Answer 62

• Where unsure of powers or want to do something which would be a breach of trust or fiduciary duty.
• Only an option if all beneficiaries are known, locatable and over 18 (and of sound mind). Cheaper as instead of going to court, requests consent of beneficiaries instead.

Will only obtain full protection if they obtain fully informed consent from all the beneficiaries.
- Essential that the beneficiaries are given full information - without it, not able to rely on the consent obtained.

If consent is only obtained from some beneficiaries this will be a partial defence but not against claims by those who didn’t give consent.

Question 63

Defence of Instigation

Answer 63

Trustees will have a defence against beneficiaries who instigate or request the breach, again this will only provide a partial defence if there are other beneficiaries who did not

Question 64

Defence of Acquiescence

Answer 64

Defence of acquiescence is available against beneficiaries who have indicated by their words or actions that they affirm/consent to the actions of the trustees.

Question 65

What is impounding a beneficiary’s interest?

Answer 65

Courts have discretion to impound a beneficiary’s interest.

Where a beneficiary instigates or requests a breach, the trustees will only have a defence against that particular beneficiary but may also be able to impound the beneficiaries interest.

This means using some or all of the instigating beneficiary’s share of the trust fund to indemnify the trustees against a claim by other beneficiaries.

Statutory power: Beneficiary does not have to benefit from the breach but consent must be provided in writing.

Common law power: Beneficiary does not have to have provided consent in writing but does have to benefit from the breach.

Question 66

What is the relief under s 61 TA 1925?

Answer 66

Where the trustee acted honestly and reasonably and ought fairly to be excused for the breach of trust.

Trustees bear the burden of establishing the three requirements:

1. Honesty
2. Reasonableness
3. They ought fairly to be excused

Court has a wide discretion to consider all the circumstances of the case. Court will not use s61 lightly. Can be used to excuse a single trustee. Particularly for lay trustees who have sought advice.

Question 67

When will the court order a full indemnity?

Answer 67

1. A particular trustee is morally culpable for the breach, such as cases where the trustee has misappropriated trust property for their own benefit.
2. A trustee is also a beneficiary
3. A trustee acts as a solicitor to the trust and the breach is committed in reliance on their advice

Court will not necessarily grant an indemnity in such circumstances, as demonstrated by comparing the following cases involving solicitor trustees.

Question 68

What options are available to protect trustees from missing or unknown beneficiaries?

Answer 68

1. Benjamin Orders
2. Section 27 Trustee Act 1925 notice
3. Retaining a fund
4. Payment into court
5. Missing beneficiary insurance
6. Obtaining an indemnity from beneficiaries

Question 69

What is a Benjamin order?

Answer 69

Protects against missing beneficiaries - useful where the trustees know of the existence of a beneficiary but are unable to locate them.

Means no ongoing trustee duties but is

A common type of order sought from the court by trustees - this is a court order permitting the trustees to distribute on the basis of a particular assumption which will depend on the circumstances of the particular case.

Before order is awarded the trustees must make full enquiries to attempt to establish the true position and demonstrate there is no reasonable prospect of knowing the true position without disproportionate expense.

Order relieves trustees from personal liability if distribute trust and assumption is wrong.

A disappointed beneficiary can still claim against beneficiaries to whom the property had been distributed.

Question 70

Section 27 Trustee Act 1925 notice

Answer 70

Prevents liability to unknown beneficiaries. Notice puts unknown beneficiaries on notice that they must identify themselves to the trustees. Notice of intention to distribute to known beneficiaries two months after advertisement.

Notice must:
(i) be placed in the London Gazette
(ii) a newspaper circulating the area in which any land held on trust is situated, and
(iii) any other newspaper which is appropriate (eg deceased owned a business the relevant trade paper may be appropriate)

Question 71

What are the rights of beneficiaries who come forward later after benjamin order or s27 notice?

Answer 71

Will not have a right to recover personally from the trustees.

Where the property has been distributed the only option for a beneficiary will be a proprietary claim against the recipient of the property.

If not all the property has been distributed yet, it will be possible for the beneficiary to claim any undistributed property from the trustee.

Question 72

What is the retained funds option?

Answer 72

Retaining a fund to satisfy the claims of missing or unknown beneficiaries.

Missing: Protects trustees and other beneficiaries but means ongoing trustee duties

Unknown: Risky - won’t fully protect trustees or other beneficiaries if they don’t retain a large enough fund

Question 73

What is the payment into court option?

Answer 73

Paying money into court to satisfy the claims of missing beneficiaries.

Missing: Protects trustees and other beneficiaries. No ongoing trustee duties - last resort

Unknown: not possible

Question 74

Missing beneficiary insurance

Answer 74

Trustees may decide to take out insurance to guard against the risk of missing or unknown beneficiaries emerging after the trust fund as been distributed.

Risk-averse trustees may well choose to use insurance alongside another mitigation measure.

Missing: Doesn’t protect against claim but trustee should be able to recover from insurer. Cheaper than a Benjamin Order.

Unknown: Doesn’t protect against claim but trustee should be able to recover from insurer.

Question 75

Obtaining indemnity from beneficiaries

Answer 75

Beneficiaries promise to reimburse the trustees if the trustees are successfully sued by other beneficiaries later.

Has the benefit of being cheaper and quicker than some of the options above, as well as avoiding part of the trust fund being tied up on trust for a long period of time.

Note: does not actually protect against claims, simply gives someone else they can recover from. Riskier because an indemnity is only worth anything if the person giving the indemnity is able to pay.