Section 86 — Trusts Act 2019: Creditor’s limited claim to trust property through trustee’s indemnity

86 Creditor’s limited claim to trust property through trustee’s indemnity (1) This section applies if a trustee incurs an expense or a liability to a creditor and the trustee— (a) has a right to be indemnified from the trust property; or (b) for any reason is not entitled to be indemnified or fully indemnified from the trust property (for example, because the trustee incurred the liability in breach of trust) but— (i) the creditor has given value; and (ii) the trust has received a benefit from the transaction between the trustee and the creditor; and (iii) the creditor has acted in good faith. (2) The creditor has a claim against the trustee that may be satisfied by the creditor being indemnified from the trust property as if the creditor were in the position of a trustee who has a right to be indemnified from the trust property. (3) The creditor has not acted in good faith for the purposes of subsection (1)(b)(iii) if the creditor had knowledge of the circumstances that excluded or limited the trustee’s indemnity (whether or not the creditor knew they would have that effect). (4) For the purposes of subsection (1)(b), a claim under this section— (a) is limited to the benefit received by the trust (together with interest calculated in accordance with Schedule 2 of the Interest on Money Claims Act 2016); and (b) must be paid in priority over any payment to a beneficiary, unless the court orders otherwise; and (c) does not alter the priority of creditors who are entitled to claim from the trust property. (5) This section applies in respect of a former trustee who incurs an expense or a liability as a trustee acting on behalf of the trust.