“Blended families, mobile beneficiaries, and new approaches to trusteeships require a flexible and highly customizable approach to irrevocable life insurance trusts (“ILITs”), one of the most common legacy planning tools.”
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“Americans are starting to fight back against a wave of insurance-price increases on decades-old life policies. Over the past year, several major insurers have notified tens of thousands of people of higher costs to keep their policies in force, with increases ranging from midsingle-digit percentages to more than 200%, according to financial advisers. To justify the increases, they blamed the impact on their investments from the Federal Reserve’s decision to keep interest rates lower for longer.”
For an in-depth explanation of the issue, please see my 12/16/15 email included with the link to the article below. Bottom-Line – all policies 5 years and older should be reviewed to see if they are performing as originally intended.
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“It seems many advisors focus almost exclusively on one generation at a time when providing legacy management services; however, looking across multiple generations may produce far better results for the family. Families will often have life insurance needs spanning generations. For advisors, viewing the entire family as one client can provide clarity as to each generation’s potential tax exposure, liquidity requirements, and even financial management needs.”
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“ILIT trustees have significant fiduciary duties that can result in serious liability if breached. To properly perform their duties and minimize exposure, ILIT fiduciaries should act independently, conduct or obtain regular, independent evaluations of the ILIT and policy performance, document their deliberations and decisions and, as appropriate, disclose and obtain waivers or consents from ILIT grantors and/or beneficiaries. Life insurance producers can add value by offering post-sale services, like policy monitoring and annual reviews of trust-owned life insurance products, as ways to support ILIT trustees in carrying out their duties.”
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“With the trust departments of many banks and retail brokerage firms turning away irrevocable life insurance trusts (“ILITs”), trustee selection becomes a rather challenging issue.”
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“A number of new federal class action lawsuits have been filed against insurers after they announced increases in the cost of insurance (COI) charges for various blocks of universal life business.”
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“State laws play a crucial role in meeting client objectives when creating an ILIT. As these laws can vary greatly state to state, clients must carefully consider their long-term impact on the ILIT. If a proposed ILIT has a potential legal connection or “nexus” to multiple states, clients should choose the state for their ILIT deliberately, rather than by default. Several issues will likely affect the client’s decision, including application of state income taxes, whether the state allows perpetual or long-term trusts, the degree of protection provided from creditors, etc. It is important to review the state’s jurisdiction and laws to ensure that the ILIT is properly implemented.”
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“Estate and life insurance planning are critical for all individuals to ensure adequate support for their families, to name guardians for minor children, to facilitate the distribution of their assets as desired, to minimize administrative hassles, to address tax planning, if needed, and, critically, to appoint agents to handle financial and medical decisions in the event of incapacity.”
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“Institutional premium financing loans to ILITs—requiring collateral from the grantor to protect any shortfall between the amounts loaned and the policy cash value—are very complicated propositions. Generally, this kind of premium financing should be considered only when….”
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“There is no doubt that key person life insurance is intended to protect the business against the premature death of a key employee. It also is clear that, in the absence of an agreement to the contrary, the employer has the option to continue the coverage – even after the key employee terminates employment.”
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