Coverage for a Family Trust – and Distrust

Family can be a source of joy and connection, representing the most important associations in life. For some, family can also represent tension, conflict and pain. Many of us are somewhere in the middle, feeling deep love for our relatives while also not completely understanding each one of them. This may be especially true with blended family members who have not grown up sharing the same values.

Because family relationships can be fraught, agreeing to be the trustee of a family trust is not a decision to be taken lightly. Even the most well-adjusted families may experience disagreements, and the grief of a loved one’s death can intensify sour feelings. Discord can lead to lawsuits, especially when a trust holds significant assets.

This is why family trust insurance is an important protection for anyone who serves as a trustee. A trustee liability insurance policy can provide coverage for a wide range of possible situations, including these:

  • Investment Decisions – A trustee can be sued by a beneficiary who thinks that it would be possible to realize larger returns if the trust funds were invested more aggressively or in different financial instruments.
  • Conflict of Interest – A person who is a beneficiary in addition to being a trustee of the same family trust may be accused of making decisions to benefit their own interests ahead of another beneficiary’s or the trust as a whole.
  • Self-Dealing – You may have been asked to be the trustee of a family trust because of your expertise in accounting, investing, law or another field; while it is acceptable to bill the trust for your time spent handling trust matters, a disgruntled beneficiary could accuse you of self-dealing—taking advantage of your position to profit unfairly.
  • Mishandling Assets – As a trustee, you may choose to handle a trust asset a particular way, such as deciding to sell off a piece of real estate. If the value of that property were to increase rapidly soon after the sale, you could be sued by a beneficiary who believes you mistimed the transaction.
  • Errors – Mistakes happen. You could be sued for an error that results in a loss of total trust value, creates a tax penalty or unintentionally results in the misallocation or misappropriation of funds.
  • Tax Decisions – A trustee can be sued for failing to obtain the most advantageous tax savings, thereby reducing the amount of money available to be distributed to the trust’s beneficiaries.

Family trust insurance provides coverage for lawsuits resulting from a variety of situations like these. The optional coverage pays for damages resulting from a negligent act, error or omission, or breach of duty while carrying out your responsibilities as a trustee. Often, coverage is also extended to any employees you may engage to help administer the trust, such as a paralegal or administrative assistant.

You can learn more about liability insurance for trustees by calling Kelly Klee at 844.885.1600 or clicking here. One of our expert insurance advisors will discuss your specific situation and, if appropriate, quickly get you a quote for family trust insurance.

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