Charity Trustee Liability: What You Risk

Charity trustees can be held personally liable, but it happens very rarely, and almost never to trustees who acted honestly and took reasonable care. The Charity Commission's own guidance puts it as plainly as anyone could want: "It's extremely rare, but not impossible, for charity trustees to be held personally liable."

That sentence is worth reading twice, because it does two things at once. It should settle the nerves of anyone being recruited to a board. And it should not settle the nerves of anyone thinking of treating trusteeship casually — "extremely rare" is a description of how most trustees behave, not a guarantee attached to the role.

This guide covers where the exposure actually sits, how your charity's legal structure changes it, and what insurance does and does not fix.

Two different kinds of liability

CC3 separates them, and the distinction is the key to the whole topic.

Liability to your own charity. "Trustees can be held liable to their charity for any financial loss they cause or help to cause. This applies to any type of charity whatever its legal form." This is the one that legal structure does not protect you from. If trustees cause loss to the charity through a breach of duty, the charity — or the Commission acting for it — can pursue them, whether the charity is a trust, an association, a CIO or a company.

Liability to third parties. Claims from outside: an employee's claim, an unpaid contract, an injury on the premises, a pension liability. This is where structure matters enormously.

Most trustee anxiety is about the second kind. Most actual trustee liability is the first.

How legal structure changes your exposure

Incorporated charities — charitable companies, CIOs, community benefit societies — have their own legal personality. The charity enters contracts in its own name and, as CC3 puts it, the charity itself is liable for third-party claims. These structures can limit trustee liability.

Unincorporated charities — trusts and unincorporated associations — have no separate legal identity. Trustees sign contracts personally and face unlimited personal liability. CC3 is explicit that if liabilities exceed the charity's assets, trustees could be liable for the difference.

That difference is the single strongest practical argument for incorporation, and it is why the question "should we become a CIO?" comes up most often in charities that are about to sign a lease, take on staff, or start delivering services to the public. If your charity is unincorporated and is about to do any of those three, the structure question deserves a proper board discussion rather than a line in the minutes.

Incorporating is not free of consequence — it means a new legal entity, transferring assets and contracts, and telling the Commission — but the powers to amend a governing document became considerably more workable in 2024, as covered in our guide to what the Charities Act 2022 changed.

What actually gets trustees into trouble

The failure modes are boringly consistent, and none of them involve bad luck:

• Spending restricted funds on the wrong thing. A breach of trust, and the clearest route to liability to the charity. Our guide to restricted and unrestricted funds covers how the distinction works.
• Trading on while insolvent. Continuing to incur liabilities the charity cannot meet. Where the charity is a company, the wrongful-trading provisions of the Insolvency Act 1986 apply to its directors — who, in a charitable company, are the trustees. If insolvency is a live question, take advice early rather than late.
• Not paying HMRC. PAYE and VAT liabilities do not disappear because the organisation is charitable.
• Failing to act on a known risk. A safeguarding concern that was raised and not addressed; a building defect on the maintenance list for three years.
• Delegating and then not supervising. Handing everything financial to the treasurer and never reading a bank statement. Trustee duties are collective and cannot be delegated away — see our guide to trustee roles and responsibilities.

What these have in common is that they are all visible in advance. A functioning risk register and a board that reads its finance report catches almost all of them.

The protection the law already gives you

Two provisions matter.

First, the general position CC3 describes: the law protects trustees who "have acted honestly and reasonably". The corollary is stated just as clearly — "There is no legal protection for trustees who have acted dishonestly, negligently or recklessly."

Second, the Commission has a statutory power to let trustees off. Under section 191 of the Charities Act 2011, where the Commission "considers that P is or may be personally liable for a breach of trust or breach of duty committed in P's capacity as a person within subsection (1)(a), (b) or (c), but that P has acted honestly and reasonably and ought fairly to be excused for the breach of trust or duty, the Commission may make an order relieving P wholly or partly from any such liability."

Note the standard: honest and reasonable, and it ought fairly to excuse. Good faith alone is not the test. A trustee who meant well but never read the accounts is not obviously reasonable.

Trustee indemnity insurance

Trustee indemnity insurance covers trustees personally against claims arising from their conduct as trustees. Charities are allowed to buy it out of charity funds — section 189 of the Charities Act 2011 provides that "The charity trustees of a charity may arrange for the purchase, out of the funds of the charity, of insurance designed to indemnify the charity trustees".

Three conditions come with it.

The policy must carry statutory exclusions. Section 189(2) says the terms "must be so framed as to exclude the provision of any indemnity" for a trustee in respect of three things, and each is wider than it first sounds:

• any liability to pay "a fine imposed in criminal proceedings", or "a sum payable to a regulatory authority by way of a penalty in respect of non-compliance with any requirement of a regulatory nature (however arising)" — so regulatory penalties are out as well as criminal fines;
• any liability incurred "in defending any criminal proceedings in which P is convicted of an offence arising out of any fraud or dishonesty, or wilful or reckless misconduct, by P";
• any liability to the charity arising out of conduct "which P knew (or must reasonably be assumed to have known) was not in the interests of the charity", or conduct where "P did not care whether it was in the best interests of the charity or not".

The recklessness and "must reasonably be assumed to have known" limbs matter: the exclusions do not stop at deliberate dishonesty. You cannot insure your way out of it.

Buying it is a trustee decision subject to the duty of care. The trustees must be satisfied it is in the charity's best interests, applying the Trustee Act 2000 duty of care. In practice that means a minuted decision, not a renewal that happens by direct debit.

Your governing document can still forbid it. Section 189 does not override an express prohibition in the charity's own trusts. Check before you buy.

Whether it is worth it depends on structure and activity. For an unincorporated charity with employees, premises or public-facing delivery, it is usually a straightforward yes. For a small incorporated grant-maker with no staff, it is a reasonable thing to decide against, provided the decision is recorded as a decision.

Insurance is also not a substitute for the things that prevent claims. It is the last line, not the first.

For anyone being recruited as a trustee

Four questions to ask before you accept:

1. Is the charity incorporated? If not, what is it about to sign?
2. What does the most recent set of accounts show about reserves, and is there a going-concern issue?
3. Is there trustee indemnity insurance, and if not, was that a decision or an oversight?
4. What is on the risk register, and when did the board last look at it?

A board that can answer all four quickly is a board that is unlikely to generate personal liability for anyone. A board that cannot is telling you something useful. Our trustee recruitment guide covers what else to set out for candidates, and the free governance code self-assessment will show a board where its own gaps are before a new trustee finds them.

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This guide covers charities registered in England and Wales. The Charity Commission for Northern Ireland and the Office of the Scottish Charity Regulator operate under separate legislation. This is general guidance based on the published Act and Charity Commission guidance, not legal advice — if your charity faces an actual or threatened claim, or you are weighing incorporation, take advice from a solicitor with charity experience.

Sources

• Charity Commission CC3: The essential trustee
• Charities Act 2011, section 189 — trustee indemnity insurance
• Charities Act 2011, section 191 — power to relieve trustees from personal liability