A trustee may ask a beneficiary to sign a piece of paper indemnifying the trustee prior to making a distribution of trust assets.
First, let’s talk about what indemnification means? Indemnification is a legal term. It literally means that one person is going to pay for any loss or harm suffered by another person.
What the trustee may be worried about is an outstanding tax liability or that some creditor may come forward in the future and want to be paid out of the trust funds. If the trustee has already distributed the trust funds, then the trustee wouldn’t be able to pay that creditor. The trustee wants the beneficiary to agree to pay that creditor of the trust, if a creditor comes forward in the future.
There are times when a beneficiary can sign an indemnification and it is perfectly fine. In fact, there are many times, especially when dealing with tax issues involving the Internal Revenue Service.
When the Trustee Wants Beneficiary to Sign a Release
Where you get into problems is when a trustee wants a release. If a trustee says, “I want you to release me of all my duties and obligations so that you can’t come back and sue me later for some mistake I may have made.” I’d be more careful about agreeing to a release.
If you’ve received full disclosure of everything from the trustee, maybe you do want to sign a release. If you haven’t gotten full disclosure from the trustee, under no circumstances should you sign a release. You want to get information to see if the trustee has done his or her job.
That’s a different issue from indemnification. Indemnification is literally just the beneficiary’s agreeing to pay for some expense if something crops up in the future. That’s something you might be willing to sign. You definitely should have it reviewed by a trust and estate lawyer before you sign anything that a trustee presents to you.