Board service and family foundations: the personal liability of serving

Why serving on a board creates personal liability

Many affluent families serve on the boards of foundations, schools, museums, churches, condominium associations or family businesses. It is a valuable way to give back, but every board decision can be challenged by donors, employees, regulators, creditors or other members. When a lawsuit names the directors, it can reach their personal assets. Claims can arrive years after the decision, when the director has already left the seat, so it helps to think about this protection from the first day and also when leaving.

Directors and officers (D&O) insurance is designed for that risk. The Insurance Information Institute (III) explains that it covers individuals for claims made against them while serving on a board of directors or as an officer, and that it can be written for for-profit businesses, privately held firms, not-for-profit organizations and educational institutions¹.

What the law protects when you serve on a board

In Florida, section 617.0834 provides that directors and officers of not-for-profit corporations generally are not personally liable for monetary damages arising from their decisions in office, unless the breach of their duties amounts to, among other things, a criminal violation, a transaction with an improper personal benefit, or reckless, bad-faith or wanton and willful conduct². The section was revised in 2026, so confirm the text that applies to your organization with your attorney.

At the federal level, the Volunteer Protection Act limits the liability of volunteers of nonprofit organizations who act within the scope of their responsibilities and are properly licensed or authorized where required, as long as the harm was not caused by willful or criminal misconduct, gross negligence, reckless misconduct or a conscious, flagrant indifference, and did not arise from operating a vehicle, boat or aircraft for which the state requires a license or insurance³. The same law states that it does not change the organization's own liability³.

For condominium associations, section 718.111 refers to those standards for directors' personal liability and requires the association to maintain insurance or fidelity bonding for everyone who controls or disburses association funds⁴. That bond protects the association's money, not the director.

What directors and officers (D&O) insurance covers

According to III, D&O responds to claims such as shareholder suits, creditor or investor suits over mismanagement, failure to comply with laws or regulations, employment practices and HR issues, and cyber liability¹. III notes that even if directors are exonerated, responding to a lawsuit can generate substantial legal fees, and that a D&O policy would likely cover those costs¹.

III lists common exclusions such as fraud, personal profiting, bodily injury or property damage, insured versus insured claims and certain benefit plan (ERISA) claims¹. Every policy has its own terms, so read the exclusions before accepting a board seat.

Family foundations: special rules

A private foundation controlled by the family has its own federal rules. The Internal Revenue Service (IRS) describes as self-dealing certain transactions between the foundation and disqualified persons, such as selling, exchanging or leasing property, lending money, providing goods or services, or paying compensation or expenses⁵. It also prohibits indirect self-dealing, including certain transactions with organizations the foundation controls⁵.

The consequences fall on individuals. The IRS imposes an initial excise tax of 10 percent of the amount involved on the disqualified person, and 5 percent on a foundation manager who knowingly participates, unless the participation is not willful and is due to reasonable cause⁶. Do not assume a D&O policy will pay these taxes; ask how your policy treats fines, penalties and taxes. Prevention depends mostly on good processes and tax advice.

If the foundation has employees, III explains that employment practices liability insurance (EPLI) covers claims by employees, former employees and job candidates over issues such as discrimination, harassment or wrongful termination, and that it also protects the entity and its directors and officers⁷. Something similar happens at home: a family that employs household staff can face the same kinds of claims, and EPLI is also available for households, as an endorsement or a separate policy. Our household staff guide explains it.

How it fits with your umbrella and personal protection

Many personal umbrella policies exclude or limit liability arising from board service, especially on for-profit boards. Some include certain protection for not-for-profit boards, with their own conditions. Before accepting a seat, ask the organization what D&O it carries, who is insured and whether its bylaws provide for indemnifying directors, and ask your agent how your own umbrella responds.

For family business boards, the rules and the policies are different from those of a not-for-profit organization. Review those seats separately with your attorney and your agent.

Keep in mind too that D&O policies are usually written on a claims-made basis: the policy in force when the claim is made responds, not the one in force when the decision was made. If you leave a board, or the organization changes policies, ask how prior acts remain covered and whether there is an extended period to report claims.

How to reduce the risk

Good governance is the best protection for the board and for each director:

• Before accepting a seat, ask for a copy of the organization's D&O policy and its bylaws on indemnification.
• Disclose any conflict of interest in writing and abstain from voting on those matters.
• Insist on clear minutes that reflect the information reviewed and the basis for each decision.
• Rely on independent advisors (attorneys, accountants, auditors) for major decisions.
• In the family foundation, review every transaction with relatives or family businesses with your tax advisor⁵.
• Keep the foundation's accounts, assets and expenses clearly separate from the family's.
• Review D&O, employment practices and personal umbrella coverage every year.
• Keep a list of every board seat you hold and share it with your agent.

If you serve on one or more boards and want to review how you are protected, write to me.