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Trust Owned Life Insurance And The Uniform Prudent Investor Act

Trust Owned Life Insurance And The Uniform Prudent Investor Act. Being A Trustee Can Be Good News. An honor and statement of trust Opportunity to manage the trust’s assets. It can also be “Bad News”. A trustee is a fiduciary Held to a high standard of performance

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Trust Owned Life Insurance And The Uniform Prudent Investor Act

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  1. Trust Owned Life Insurance And The Uniform Prudent Investor Act

  2. Being A Trustee Can Be Good News • An honor and statement of trust • Opportunity to manage the trust’s assets

  3. It can also be “Bad News” • A trustee is a fiduciary • Held to a high standard of performance • State law may create unexpected responsibilities

  4. The Irrevocable Life Insurance Trust (ILIT) Is The Trust Most Frequently Undermanaged WHY?

  5. The Trustee • Probably not consulted about the trust’s terms • Probably didn’t select the trust policies • No control over new funds coming into the trust • Probably can’t change the terms of the trust • Probably doesn’t know how to determine carrier and policy suitability • Probably doesn’t know how to measure a policy’s performance

  6. Additionally, Other Factors Make The Trustee’s Job More Difficult • Many states have increased trustee performance standards • From a life insurance perspective • The trust’s policies may not perform as illustrated • Company’s financial position may have deteriorated • Cost of insurance has changed • Company’s investment experience has changed • Companies are constantly developing new and improved products

  7. Yet with these concerns and questions The Uniform Prudent InvestorAct holds the trustee responsible for managing the trust to comply with the rules set forth in the act.

  8. “Prudent Investor” Standard • The trustee should implement good procedures: • Adopt a formal investment strategy to grow the trust • Diversify the trust’s assets • Regularly monitor asset performance • Make changes as necessary

  9. Managing The ILIT And The Insurance Component • Prudent Administration • Can help the trustee’s relationship with the grantor • May improve the benefit received by the trust beneficiaries • May reduce the possibility of either a dispute or litigation with the beneficiaries

  10. Investment Policy Statement for Life Insurance • Provide guidance regarding the Grantor’s • Purpose in providing a life insurance policy as a trust investment • Intent to provide for specific beneficiary needs • Relative time frame • Risk tolerance • Planned gifting levels • Preference for restorative action (if necessary)

  11. Other Duties • Reviewing the trust document • Evaluating the proposed or existing carrier • Evaluating the proposed or existing policy

  12. Three Key Questions For Trustees • Have you adopted a written investment policy statement for life insurance? • Have you regularly monitored the trust’s policies? • Do you have the knowledge and experience to evaluate different life insurance policies?

  13. A trustee who answers “NO” to any of these questions may benefit from consulting with someone who has experience in evaluating life insurance policies.

  14. A Life Insurance Expert Can Help The Trustee • Review the Trust’s life insurance policies • Evaluate the current policies to see how they’ve performed • Survey the marketplace to see if better life insurance policies are available • Summarize available options and make recommendations

  15. The Prudent Investor Act states: “A trustee may delegate investment and management functions that a prudent trustee of comparable skills could properly delegate under the circumstances”.

  16. Rocky Mountain Insurance Network Has Developed A: “Professional Life Insurance Management Program” To Assist Trustees In The Management Of The Irrevocable Life Insurance Programs Under Their Responsibility

  17. Professional Life Insurance Management Program includes: • Engagement Agreement between Trust organization and Rocky Mountain Insurance Network • Sample Investment Policy Statement for Life Insurance to assist trustee in getting started • Fact Finder form to gather current policy information • Broker Authorization letter to allow release of information on current in force policy • Complete Policy Review form detailing entire review process

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