Trusts are the best way to allocate inheritance when they are structured correctly during the grantor’s living years. As baby boomers retire and pass on, bank executors, law firms and independent trust companies face increasing claims.

These include claims of mishandling assets, failure to prudently administer the trust; too high a risk appetite in the portfolio; suitability of investments; diversification; failure to impartially administer the trust and more.

Protecting your bank trust with professional liability or errors and omission (E&O) coverage is a first step to minimizing liability. Contrary to popular belief, a business’ general liability (GL) policy doesn’t cover professional exposures, nor does it offer umbrella protection. Instead, a stand-alone E&O policy is required to protect all professional services you provide to grantors and beneficiaries.

E&O deductibles are infamously high when it comes to trusts because claims are highly contended and personal, often involving multiple arms and generations of a family. Specialized attorneys are needed to defend claims and the financials involved are often complex. Consider the following 5 best practices to minimize trust trustee E&O risk, while also providing peace of mind for your institution and clients.

  1. Have adequate limits. Most banks and larger trusts have E&O coverage. However, when the policy is part of a bundled banker’s liability policy with shared limits across multiple coverages, there’s a good chance your E&O limits are not sufficient.
  2. Define professional services as broadly as possible. Unlike other professional liability coverages, there’s no standard E&O form or policy for covering trusts. There could be nuances between policy forms. Each policy is written to meet the specific exposures of the business. Defining your business’ professional services as broadly as possible will ensure that your work, whether it’s accounting, tax or basic trust services are covered should you face a claim.
  3. Eliminate exclusions, or reduce their scope. E&O policies can contain a number of exclusions, including a hidden regulatory exclusion. Soften the fraud exclusion. Be careful of a prior acts exclusion and/or an excessive fees exclusion. A robust E&O policy will include regulatory claim coverage and investigative costs coverage along with your typical defense and settlement costs.
  4. Communicate effectively with all parties. Put controls in place and engage in risk management to avoid claims in the first place. How often and effective is your communication with beneficiaries? Are you addressing issues as they arise and communicating with all interested parties? Watch for regular updates on trust activities in the media.
  5. Contract with an E&O attorney (trustee). Trust laws vary by state. Work with expert council to determine what the laws are in your state, and know how they are enforced. Keep track of changes at the state and federal level to ensure compliance.

While trust claims may be low in frequency, when they do arise they are almost always high in severity. Having right-sized E&O insurance is a trusts manager’s best bet for protection. Contact your HUB financial services specialist to find out if your E&O limits are adequate enough and what you can do to best minimize your risks.