Should be reimbursed, but no need for extravagance
When trustees incur expenses, they are not expected to be out of pocket in carrying out their responsibilities. Trustees are entitled to use trust money or to get a refund from the trust fund if they incur expenses in carrying out their duties. Trustees’ expenses, however, must be fair and reasonable. A recent case shows why it is also important to be sure that you can trust your trustee not to take advantage of the right to claim expenses.
Carrying out a trustee’s obligations and responsibilities can take up much time and some expenses can be incurred in doing this. Trustees are not usually entitled to charge a fee for their time, unless the trust deed or will allows them to do this. The trustees are, however, at least entitled to have their expenses met from the trust fund, provided the expenses are fair and reasonable. If the trustee has to pay for anything personally, the trustee is entitled to be reimbursed.
When it can go pear-shaped
A recent case is a good example of what can go wrong where trustees go too far when claiming expenses. The Kellerman case was mentioned in the news last year.
John Kellerman died in 2018; his will left some of his estate for his wife but he also had three children by an earlier marriage. His will also provided for those three children and named one of them, Margaret, as executor and trustee.
Margaret lives in the UK. In order to deal with the work of executor and trustee, including clearing out the estate properties, she travelled from the UK to New Zealand on four separate occasions. Each time she flew business class with her husband. They took the cost of travel from the estate. They also charged the estate for them both to stay at a Hilton Hotel and have three meals a day there while dealing with the estate.
Court says expenses were unreasonably extravagant
One of Margaret’s brothers complained to the High Court. The court agreed that travelling business class was ‘unreasonably extravagant’. It should not have been necessary to travel to New Zealand four times; local contractors could have been hired to do much of the work. Staying at the Hilton was also considered extravagant. Margaret should have considered a motel, or even the house she apparently owned nearby. Charging the estate for the three meals a day at the hotel was also excessive — the judge commented that Margaret and her husband would have had to eat wherever they were and whatever they were doing. It was also unreasonable to expect the estate to meet her husband’s airfare, accommodation and meals.
Court removes trustee
The judge decided to remove Margaret as executor/trustee and to appoint the directors of a Wellington specialist trust law firm as trustees. They were directed to review all of the expenses charged and to decide how much Margaret should be required to refund to the estate.
The Court of Appeal had previously confirmed, “It is one of the fundamental rights of an honest express trustee that costs and expenses properly incurred in the administration of the trust are compensable out of the assets of the trust.”
The courts have, however, always been careful to ensure that expenses charged to a trust or estate are reasonable. As one judge put it, “Every dollar paid in trustees’ expenses is a dollar denied to beneficiaries of the trust.”