Personal Risk Management for Charity Trustees

What we say - Article


Personal Risk Management for Charity Trustees

1763504_shutterstock_72965077v2There are estimated to be around 800,000 charity trustees in England and Wales with many more needed. The ability to commit time, without payment, remains a major obstacle to recruiting new trustees and partly explains why the average age of charity trustees is 57 years.  However, what could  be hampering the recruitment drive is the fear of personal liability - it is one thing to devote time without payment, it is altogether something else to put you and your family’s financial well being at risk.

The Charity Commission’s Guide “The Essential Trustee” runs to 44 pages, of which only two pages cover advice on the liabilities of charity trustees.  The guide identifies some of the risk but does very little to assuage the concerns of those thinking of becoming trustees, containing only a short list of recommended steps that trustees might take to reduce exposure, including taking professional advice. Whilst the recommended steps may provide a useful aid memoire to existing trustees, it is wholly unrealistic to expect potential recruits to carry out the level of due diligence that is suggested before they agree to become a trustee, or expect them to pay for professional advice prior to appointment.

The best protection for charity trustees is achieved by a combination of good management practice, incorporation, and adequate insurance. Of these, incorporation provides the most consistent protection.  The Government has recognised this by creating Charitable Incorporated Organisations (CIOs).  Once these are up and running, it will be possible for existing charities, established under trusts or as incorporated associations, to convert to a CIO.  Charity trustees of CIOs will then be placed in the same position as trustees of incorporated charities.  Broadly speaking, they have the same protection from personal liability that directors of companies enjoy.

Unfortunately, whilst CIOs are being registered in Scotland, the news is not so good for England & Wales where the Office for Civil Society has yet to publish the governing rules or an implementation plan.  The hope is that the Charity Commission will start registering CIOs during spring 2012 - however, the Charity Commission has already made clear that it does not have the resources to deal with the conversion of existing charities to CIOs. This means that for the foreseeable future registration will be restricted to new charities.

There will be many established charities for which a CIO does not provide the answer – whilst it will be possible for charities established by trust to convert to CIOs, the terms of the trust may conflict with the terms of the mandatory constitution that is required for a CIO.

What this all means is that for the foreseeable future, trustees of unincorporated charities continue to face risks of personal liability that can only be addressed by a combination of good management practice and insurance. The main areas of risk are:-

  • Breach of duty or trust
  • Liability under contracts that the charity enters
  • Tort (e.g. negligence) and breach of duties owed to third parties
  • Insolvency

Breach of Duty and Trust

This relates to breach of obligations owed by the trustees to the charity.  An example would be where a grant funding charity makes a payment that turns out not to be in accordance with the charity’s constitution or is in contravention of charity law.  The Charity Commissioners can exonerate trustees from liability where the trustees have acted honestly and reasonably, and ought fairly to be excused.  Some protection can also be provided by trustee indemnity insurance, which the charity is allowed to pay for unless the governing document expressly prevents it.  This insurance cover does not extend to trustees who knew the act or omission was a breach, or who were reckless as to whether it was or not.  Neither does it extend to the costs of defending criminal proceedings or any fines. The biggest problem with trustee indemnity insurance is that it is usually claims based. This means that insurance cover must be in place at the time the claim is made (not when the act or omission complained of took place).  Trustees can be left without cover, even after they have retired, if the insurance is not renewed from year to year, with cover also being denied if the claim is not reported promptly.

Breach of Contract

If the charity is unincorporated, trustees are personally liable but entitled to an indemnity from the charity’s assets.  If the charity has insufficient monies to pay the liability, or if its assets are not in liquid form (e.g. they are invested in property), then the trustees can be left personally exposed.  Insurance is generally not available to cover this type of exposure.

Tort and Breach of Duties Owed to Others

This is the area that most trustees are worried about because problems can give rise to the biggest liabilities.  Examples of areas at risk are:-

  • Health and safety
  • Vulnerable people (e.g. children)
  • Discrimination 
  • Environmental
  • Negligent advice

The risk of personal liability is massively reduced if the charity is incorporated.  For unincorporated charities, however, maintaining adequate insurance cover is an absolute must.

Depending on the charity, several types of cover may be required.  There are a number of bundled insurance products in the marketplace and it is sensible to undertake an assessment of risk to determine what cover is required.  This is where lawyers can help, as they have the experience of knowing where claims are likely to come from, ensuring that you have the cover you need rather than your simply buying whatever the market is offering.  Further care also needs to be taken in future years to ensure that cover is not changed, purely as a cost cutting measure, without  first checking that  adequate cover is maintained.


For most unincorporated charities, the risk of insolvency is very low - it is in the nature of smaller charities that they do not spend monies they do not have.  Similarly, grant making charities will only allocate funds that they actually have.  In practice, a charity is most likely to become insolvent as the consequence of a claim being made in tort or for breach of duty (see above) and where the charity does not have insurance cover. Grant funded charities which have to enter into commitments to deliver services without being sure that the funding will turn up also need to consider the issue of insolvency.  It would be right to expect that such charities are incorporated because in practice that is the only way to guard against the risk of personal liability.  Trustees of incorporated charities may also want the charity to pay for directors’ and officers’ liability cover so that they are protected from claims arising from insolvency.


If you are invited to become a trustee of a charity that is incorporated, has good management practices and has adequate insurance in place, then you should have nothing to fear.  If the charity is not incorporated, then greater care needs to be taken. 

If you are already a trustee, it is good practice to regularly review risk management and insurance levels and ensure that the organisation has appropriate funds to meet liabilities.

Andy Taylor, Partner


Published: 6 Dec 2011

Subscribe to all articles and news: