I am providing a link to The CPA Journal article, “CPAs’ Growing Role in Trust-Owned Life Insurance Planning” by: Chad L. Reyes and Robert J. Alder, September 8, 2016. Important excerpts from the article are provided below:
“It is incumbent upon CPAs advising such individuals to ask when, if ever, these [trust-owned] policies have been reviewed. Will the policy lapse due to poor policy performance or lack of appropriate premium funding, or are there better policy options available that are in the best interest of the beneficiaries? […]
• “85% of trust-owned policies could be restructured to provide more value
• 71% of ILIT trustees say they have not reviewed their trust’s life insurance policies in the last five years
• 84% do not have stated guidelines and procedures in place for handling life insurance .” (1)
“The Uniform Prudent Investor Act (UPIA)…establishes standards for trustees in upholding their duty to manage and invest trust assets as a prudent investor would, exercising reasonable care, skill, and caution…This care must be extended…to all portfolio assets, including life insurance portfolios. The risks and quality of assets given to a trust or subsequently purchased by the trustee must be constantly reviewed.
The UPIA provides that the trustee…has a ‘continuing responsibility for oversight of the suitability of investments already made, as well as the trustee’s decisions respecting new investments.’ In addition, ‘within a reasonable time after accepting a trusteeship or receiving trust assets, a trustee shall review the trust assets and implement decisions concerning retention and disposition of assets.’”
“With the standards imposed by the UPIA, trustees are exposing themselves to liability from lawsuits involving trust-owned life insurance. To avoid this liability, trustees must establish and maintain adherence to policies and procedures for the evaluation of life insurance in a trust that will enable the trust to accomplish the intended purpose of the grantor…”
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1 Mark Teitelbaum, “Trust-Owned Life Insurance: Issues Trustees Face; Decisions Trustees Need to Make,” Journal of Financial Services Professionals, July 2005