Wealth Actually

Ep.60 FIDUCIARY LIABILITY with JUDY PEARSON

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Judy Pearson is the Founder and CEO of Nomadx.

Nomadx helps fiduciaries, officers, directors, trust companies and law firms identify the risks in their practices and insure them against liability. She has over 37 years of experience with Chubb, AIG and was a pioneer in the development of directors and officers liability coverage for AON.   We’re going to be focussing on the liability issues facing fiduciaries, including individuals, law firms, corporate trustees and private trust companies.

Trustee Roles and Responsibilities
 
The words Trust and Trustee- are big “all encompassing” words that mean different things to different people. Let’s try to break it down a bit:
 
A trust in general has three main roles:
  • Grantor (Person forming the trust)
  • Trustee (Person or entity in charge of running the trust)
  • Beneficiaries (Those people who will benefit from the trust)
    • Insurance Perspective
    From an insurance perspective, what do you see as the responsibility of the trustees?
     
    What are the duties (i.e. who is the client reporting to?) and risks?
    • Duty of Loyalty (to the trust)
    • Duty of Care (to the trust and the different beneficiaries)
    • Safeguarding the Assets
    • Reporting on the Assets
    • Prudently Investing the Assets
    • Distributing the Assets
      • When dealing with the risks, what do modern trustees do to protect themselves from liability?
      • Good policies, procedures, record keeping around decision making and action (operating with the risks)
      • Setting up good structures to shield liability and get adequate support from experienced trustee providers to help with the job (transferring the risk)
      • Identifying reasonable risks and getting reasonable insurance (insuring against the risk)
        • How does trustee liability insurance look?
        Are there parallels to E&O and D&O insurance)?
        And what are the common misconceptions of the trustee insurance market?
        • You don’t need insurance
        • Your umbrella policy covers you
        • Your traditional E&O, D&O policies will cover you
        • Trust Protector / Power of Attorney might not be in traditional insurance
        • Belief of Indemnification – Is there an agreement?
        • Can we indemnify beyond the law?  Gross Negligence?
        • Good Insurance advances defense costs to get out of Gross Negligence
          Reasonable risks:  What are modern trustees worried about?
          • TOLI’s and Life Insurance
          • Distribution questions
          • Interfamily loans
          • Investing and reporting
          • Reg BI
          • Conflict between SEC and state standards
          • 5 states of adopted their own rules and 12 additional states expected to adopt their own rules is 2020
          • Investment performance will be reviewed in 2020 hindsight
          • Reporting to beneficiaries (look at SEC guidance)
          • Cases to watch
          • Divorce case testing South Dakota Privacy Laws and Asset Protection
          • Breach of Fiduciary Duty
          • Prudent investing internal funds vs. external funds
          • Conflict of interest, mutual fund selection
          • Direction Structures
            • Deep understanding of roles and responsibilities
            • Execution vs. structure of document
            • Beneficiaries – making sure they are educated
              • Future Trends
              • Hybrid solutions with corporate trustees
              • Special Purpose Entities
              • Insurance pooling?
                • Conclusion

                We’ve presented a lot of scary scenarios!

                For current trustees and future trustees what is a good first step they should take in analyzing their situation?

                How do we keep track of you and Nomadx?

                WEBSITE: NOMADX

                LINKEDIN: JUDITH PEARSON

                https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT
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