Trustees and Insurance - what you need to consider

“A trustee owes a duty of honesty, integrity, loyalty, and good faith to its beneficiaries. So, it is incredibly important for trustees to understand how best to protect the assets in their care.”

Many of our clients use trusts as a tax-efficient method of estate planning. The ownership of an asset transfers into a trust, and this trust therefore becomes solely responsible for the asset. This means it is wise to protect it with insurance cover.  

All trust assets are going to be valuable, whether art, land, or property, so let’s look at how to approach the world of insurance protection for trusts.

Currencies and insurance tax

We would always advise asset sums insured to be in the currency of the country in which they are located. This is the same for the premium. UK insurance premium tax is set at 12%, which is one of the lowest in Europe. Some countries charge additional local authority taxes, on top of insurance premium tax. We are experienced in multi-currency solutions, so if you are unsure, please ask us what the best option is.

Who is the policyholder?

It’s not unusual to insure an asset on the beneficiary’s insurance policy and note the interest of the trust, but usually the trust takes out a separate policy and is the policyholder. This way the trust has complete control of the policy and claims.

What will insurers want to know?

All insurers will want to know who the trust is, the background, where the trust is located, who the trustees and beneficiaries are, the locations of the assets and how they are protected against damage, and the claims history if it is an established trust. These are all underwriting factors and a specialist broker like Howden will guide you through this process.

What type of policy cover is needed?

Art, Collections and Jewellery

Property and Land

Case study: Insurance for a multimillion-pound art collection

Case study: Insurance for a trust responsible for estate property

How to avoid being underinsured

A trust has a duty to ensure that the assets under their care are insured correctly. Art, collectibles, and jewellery prices constantly fluctuate so seeking the advice of a professional valuer is a must. Having a recent valuation means you can decide the correct “agreed value” with your insurer, then if there is a claim, once the circumstances are agreed by your insurer, they will refer to the valuation and settlement should follow in a few days. Therefore:

• Choose to work with a specialist accredited company
• Update the valuation every three to five years
• Consider an annual updated valuation service

Currently, insurers are seeing an average of 70% underinsurance when it comes to buildings. The rise in costs following Brexit, Covid-19 and, subsequently, the Russian conflict with Ukraine and our current cost of living crisis are all having an impact. Insurers are paying out more than ever on claims and are seeing buildings underinsurance far too frequently. Combine this with the difficulty of obtaining a trustworthy and competent contractor to carry out the work in good time for a sensible price and you have the perfect storm. But what can you do?

• Don’t rely purely on mortgage or bank surveys, as these are often very basic and limited in scope. Instead, you should have a rebuild survey carried out by a qualified RICS specialist.
• Insurers will index-link the rebuild figure each year, but this is a generic percentage and not to be totally relied upon.
• Consider an updated survey every three to five years and always following any building renovations.
• High net worth insurers will carry out a free survey, and after this survey some will guarantee to rebuild the property regardless of the sum insured.

Managing the assets

If you choose to have an annually updated valuation service, this will provide you with a workable specification of the assets insured. Alternatively, there are sophisticated systems provided by asset management companies that can list, categorise and manage all kinds of assets from art to property, boats to classic cars across multiple locations, always giving you a clear and accurate picture. 

Protection whilst on the move

We see a lot of claims for assets damaged during transit. This type of claim is covered by a good All-Risks insurance policy but only if the item is packed, stored and moved using a method suitable for its size and value.  We would advise that you:

• Research transit companies to make sure they have the right level of expertise
• Always have a condition report carried out before and after 

Bonded warehouses and freeports

These are locations where assets can be held/stored without the need to pay import duty charges. Some locations will offer insurance protection included in the storage fees, but the cover is often limited, and you have no control over how a claim is managed as it is not your policy. As items are usually in a bonded warehouse on a temporary basis and it is a commercial location, you must let the Art and Collections insurer know. There are only a few specialist art insurers, and most will already insure an extremely high value of art in these locations, so some insurers have a cap on capacity. If you are considering using these types of facilities for very valuable art, please let us know so that we can make sure you get the right advice and that insurance is readily available.

Are you properly protected?

As a trustee, you can be held personally responsible for decisions and actions, and if you make a wrong judgement and a claim is made against you, this can be costly. There is an easy, cost-effective solution - Trustees and Estates Liability insurance. This will provide you with:

• Legal protection – advice on complex legal challenges
• Financial security – safeguards against personal financial liability in case of mistakes
• Peace of mind - allows you to fulfil your responsibilities with confidence

Find out more: Trustees & Estates Liability Insurance Quotes | Howden Insurance

Next steps

We work with our clients to understand what’s important to them. Only then can we create an insurance programme to best suit all their needs.

We assign each client a qualified insurance professional who is their dedicated point of contact. Their role is to ensure that our clients have seamless access to our network of high calibre colleagues and to the right expertise when they need it, whether that be Brokers, Claims Managers or Risk Managers both across the Howden UK network and globally.

To speak to Howden about your own, or your clients’, insurance requirements contact joshua.meadowcroft@howdeninsurance.co.uk