What is an Indemnity?

Are you a residuary beneficiary of an estate and expecting a final distribution of your gift?  Are you wondering why you have been asked to sign a deed of indemnity and release?  What is the indemnity you are being asked to provide?

The answer is that you are being asked to promise to meet any future, and presently unknown, expense that the executor might incur after the completion of the administration.  By signing the deed of indemnity and release, you will be legally bound to compensate the executor for future expenses directly related to the administration of the estate.

An executor acts in a trust position.  An executor is not paid for the services rendered, but has a right to be compensated for all properly incurred expenses, including legal fees, by the estate.  The executor is not required to meet those expenses personally.

A prudent executor does not finalise the administration of an estate until such time as he or she is satisfied that there are no further expenses.  Yet despite best endeavours an unforeseen claim against the estate may be made.  In such circumstances, the executor would look to the residuary beneficiary to meet the costs incurred in responding to the claim.  The executor would rely on the legally enforceable indemnity in the deed when seeking compensation from the beneficiary.

A beneficiary may decline to enter a deed providing an executor with an indemnity.  An executor cannot refuse to distribute the share of the residue of the estate to the beneficiary who chooses not to sign a deed of indemnity and release.  The residue must be distributed.  Of course, a decision not to sign may delay distribution while the executor further considers any possible claims against the estate and files for the passing of estate accounts with the court.

Elizabeth Lorimer,
Special Counsel


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