Why North Carolina Trustees Should Acquire Liability Insurance

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Without liability insurance, trustees remain personally accountable for trust administration mistakes. Certain insurance policies help to manage trustee liability. These errors and omissions (E&O) insurance policies for trustees provide coverage in the event that claims, lawsuits, or damages occur as a result of the trustee’s actions or inaction. Often the policies include provisions that allow for insurance premiums and/or claim deductibles to be paid through the trustee’s expense account.

1. Legislation limitations. Statutory law only protects trustees to a certain extent. For example, North Carolina General Statutes Article 10 § 36C-10-1002 provides: “A trustee who commits a breach of trust is liable for the greater of: (1) The amount required to restore the value of the trust property and trust distributions to what they would have been had the breach not occurred; or (2) The profit the trustee made by reason of the breach.” Further, North Carolina law permits claims against trustees for up to 5 years after the trustee’s resignation, removal, or death, or termination of the trust. Should an issue be discovered after the trustee leaves their role, their personal assets or estate could be subject to claims.
2. Fault. Even when a trustee is innocent or errors were made unintentionally, defense costs and litigation to prove such could be devastating to a trustee’s personal finances and assets. A trustee liability policy helps to cover defense costs related to claims and lawsuits. If losses and damages were incurred by beneficiaries or another party, the policy can help compensate those parties.
3. Personal liability. The legal exposure uninsured trustees hold potentially places their personal finances, property, and business interests at risk. While a trustee’s personal assets might still be at stake when an insurance policy is in place, the policy’s coverage could help to minimize the degree to which a trustee’s personal assets would be threatened. North Carolina limits a trustee’s personal liability in some circumstances. For instance, a trustee may be held harmless if the trustee was not at fault and breach of trust did not occur. Review North Carolina General Statutes Article 10 § 36C-10-1010 regarding personal liability limitations and consult a North Carolina trust attorney for guidance.