Risk Management for the Life Insurance Trust Trustee A Summary of § 736.0902

1. Risk Management for the Life Insurance Trust TrusteeA Summary of § 736.0902 Patrick J. Lannon Goldman Felcoski & Stone P.A. 95 Merrick Way, Suite 440 Coral Gables, Florida, 33134 plannon@gfsestatelaw.com (305) 446-2800

2. Definitions relevant to § 736.0902 Qualified Person: “a person who is insured or a proposed insured, or the spouse of that person, who has provided the trustee with the funds used to acquire or pay premiums with respect to a policy of insurance on the life of that person or the spouse of that person, or on the lives of that person and the spouse of that person.” (Emphasis added). - Query what it means to provide a trustee with funds. How would a split dollar contract be treated, where some funds are provided by a third party? How about indirect transfers, such as by making the ILIT a remainder beneficiary of a GRAT? In any event, it appears that the vast majority of ILITs will have insurance on the life of a qualified person.

3. Duties Relating to Insurable Interest • If: • Trust owned insurance is on the life of a “qualified person”; • The trust agreement does not opt out of the application of the statute; • The insurance was not purchased from an affiliate of the trustee and neither the trustee nor an affiliate of the trustee received any commission unless duties have been delegated to another person under § 518.112; • The trustee did not have knowledge that the beneficiaries lacked an insurable interest when the policy was issued; and • The trustee did not have knowledge of a STOLI type arrangement. • Then: • The trustee has no duty to determine whether there is or was a sufficient insurable interest in the policy.

4. Duties Relating to Prudent Investor Rule • If: • Trust owned insurance is on the life of a “qualified person”; • The trust agreement does not opt out of the application of the statute; • The insurance was not purchased from an affiliate of the trustee and neither the trustee nor an affiliate of the trustee received any commission unless duties have been delegated to another person under § 518.112; and • Either: • The trust Agreement opts in to the application of the statute; or • The trustee gives notice to qualified beneficiaries and there is no objection within 30 days of receipt or the objection is withdrawn

5. Duties Relating to Prudent Investor Rule (continued) • Then, the trustee has no duty to: • Determine whether the life insurance is or remains a proper investment • Investigate the financial strength of the life insurance company • Determine whether to exercise any policy option available • Diversify with respect to the life insurance • Inquire about or investigate the health or financial condition of the insured • And: • The trustee is not liable to the beneficiaries or any other person for any loss sustained with respect to the life insurance • And: • A trustee who performs fiduciary or advisory services relating to the insurance will not be compensated for performing the services listed above or the determination of insurable interest