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Trustee/Fiduciary Responsibility

Under the Unified Prudent Investor Act (UPIA), a trustee has a fiduciary obligation to manage and review the appropriateness of assets owned by a trust. This includes the assessment life insurance assets (policies) held in an irrevocable life insurance trust (ILIT).

Why are trustees being sued?

  • Data from Trusts and Estates as well as the National Underwriter highlight:
  • 84% of professional trustees lack guidelines and procedures for managing trust owned life insurance
  • 95% of professional trustees lack guidelines and procedures for handling the asset allocation inside variable life insurance contracts
  • 95% of all trust owned life insurance policies are no longer serviced by the original life agent
  • This inaction yields significant litigation exposure to the trustee. This exposure stems from the following facts:
  • 92% of existing trust owned policies could be restructured to provide 20% greater value
  • 75% of restructured policies provide either a 40% increase in death benefit or a 40% reduction in premiums
  • 1 out of every 3 life insurance policies held in trusts will lapse prior to the payment of a death benefit
  • 7.2% is the illustrated average crediting rate at the time of sale while 4.7% is the actual average crediting rate on life insurance policies held in trust

A review of the annual policy statements could find the trustee at fault if it appears to show that the trust has been paying excessive Cost of Insurance (COI) Charges, Premium Loads, Fixed Administrations Expenses and/or Cash-Value-Based "Wrap-Fees", OR that invested assets underlying policy cash values appear to have under-performed their benchmarks for the respective asset classes, due to lack diversification. Any of these could be found to be inconsistent with the trust objective to maximize benefit to trust beneficiaries.

A Life Insurance Policy Audit will analyze each of these important components in detail to make sure that the trustee is completing their fiduciary responsibility.