Serving as a trustee or as the executor of an estate obviously comes with a lot of responsibility along with potential liability for alleged errors or misconduct. A trustee or executor needs to handle financial and tax reporting, legal paperwork and other sensitive information and tasks. A trustee may also need to navigate the sometimes-complicated personal relationships of the beneficiaries —who may have very different ideas of “what’s best” for the trust or estate.
If a beneficiary or other relevant party believes that the trustee has not acted in the best interest of the estate or trust, have made moves to benefit themselves, or otherwise breached their fiduciary duty, they can sue the trustee personally for damages. Trustee Errors & Omissions (E&O) Insurance can provide financial protection for trustees.
Common types of complaints against trustees include:
- Making poor investment decisions
- Incurring avoidable fees or interest due to the failure to pay taxes, debts or other liabilities
- Distributing assets in a way that conflicts with the trust’s terms or favors some beneficiaries over others
- Having a conflict of interest or self-dealing
All of these and other issues can open the trustee to personal liability – ie personal assets are at risk.
A trustee can take steps to protect themselves from complaints of breach of duty and lawsuits, including these best practices recommended by Wealth Management:
- Having regular communication with the beneficiaries so they understand what is going on — and why. This should include a review of recent operations and investments as well as the current income and principal.
- Providing written policies for investment strategy and distributions.
- Maintaining meticulous records.
- Ensuring you have a solid, up-to-date understanding of relevant laws and best practices.
- Procuring Trustee E&O Insurance.
Trustee E&O Insurance is important because a trustee is vulnerable to someone’s misinterpretation or misunderstanding of their actions no matter how diligent the trustee is in performing their duties. And successfully defending against a claim can be costly as well.
eSpecialty Insurance is your specialty insurance expert. We have developed a streamlined process to provide multiple proposals from a range of competitive insurers, along with expertise to help you evaluate your exposures and choose the best combination of specialty insurance coverage and price. Get in Touch – we look forward to working with you.