Exculpatory clauses or indemnity clauses in wills and trusts are common forms of protection provided to the trustees by testators and settlors.

When a trustee is appointed under a testamentary or inter vivos trust document to administer and manage an estate or a trust, some consider it to be an honour and a privilege.  Unfortunately, the reality of the office of the trustee is often fraught with inexperience, lack of knowledge and understanding of the subject matter, and difficulty in the management of relationships especially as it relates to beneficiaries.  The shelf life of the initial honour and privilege is short and soon replaced with burden and stress.

As a result, the existence of exculpatory clauses (as well as provisions under the Trustee Act (Ontario)) assists to relieve or limit the liability of the ordinary lay person, usually a family member, undertaking the onerous role of the trustee.  While it is not possible for a testator to completely absolve the liability of the trustee via exculpatory clauses, the presence of them in a testamentary document or indenture can provide some degree of comfort and peace of mind to the trustee.

Common law principles and developed jurisprudence involving exculpatory clauses stand for the proposition that an exculpatory clause cannot excuse liability for acts of gross negligence, willful defaults or intentional wrongdoing and for acts of fraud or dishonesty, but that it could be effective for breaches of trust which are lesser than these.

However, it is clear exculpatory clauses may not be a guaranteed form of protection to the ordinary lay trustee.  Some trustees will question whether the clauses can actually relieve them of negligence (not gross) when they have acted honestly and in good faith.  Why would one take on the role if it does not provide certainty of protection?

As a result, to further protect themselves of the potential liability, trustee insurance has become a popular form of added protection.  While taking out such an insurance policy may be something that a more cautious executor or trustee may consider, it is becoming more common in estates and trusts that have financial and relational complexities.  This alternative or additional form of protection, thus, brings into question the effectiveness of exculpatory clauses.  It certainly lends credence to the fact that exculpatory clauses may not live up to its purpose of shielding the office of the trustee from liability.

Another option is for testators and settlors to relieve the lay trustee and leave it to the professional trustee who is ready, willing and able to assume the risks of administration provided that the exculpatory clauses are present in the will or trust deed.

Written by Sally Lee