Trustee’s Efforts to Sell $3 Million ILIT Policy Faced a Legal Quagmire until Asset Life Settlements Intervened
Wealth advisors and insurance professionals are routinely faced with complex estate planning challenges for their high net worth clients. One of the most common issues involves helping the client determine the best course of action for a trust-owned life insurance policy that is no longer integral to achieving the trust’s estate planning objectives.
In some client scenarios, the insurance policy that is held in an ILIT is no longer relevant to the trust’s goals because the beneficiaries’ estate tax burden has been eliminated or reduced. In other situations, the premiums may have escalated over the years and the trustee has determined that it is not economically feasible to keep the policy in force.
As illustrated in the actual case example below, a routine life settlement transaction can encounter unnecessary delays or roadblocks due to outdated legal documents or lack of proper planning.
Fortunately, in this case, Asset Life Settlements was able to work directly with the carrier to cut through the red tape resulting in a successful outcome for the client.
Outdated Legal Documents Present Obstacles to Selling ILIT Policy
This case involved two sisters (one of whom served as Successor Trustee for the ILIT) who could no longer afford the escalating premiums for their elderly mother’s $3 million policy. Over the years, the family’s estate tax burden had dwindled while the cost of the policy’s annual premiums had escalated..
The two sisters decided they no longer justify maintaining the policy. After considering all the options, they sought the assistance of their wealth management advisor in pursuing a Life Settlement.
Initially, their attempts to establish communication with the insurance carrier to coordinate the sale and transfer of the policy’s ownership were not successful due to a series of legal obstacles. To the family and their financial advisor, it seemed to be a clear case of Murphy’s Law as detailed below:
• The original Irrevocable Life Insurance Trust document was missing.
• The Estate Attorney who had drafted the ILIT did not maintain a copy.
• The original Trustee for the estate plan was deceased.
• The original Successor Trustee was also deceased.
• The Servicing Agent of Record had been replaced by the carrier.
• Without the carrier’s cooperation, selling the policy was not possible.
Advisor Teams Up with Asset Life Settlements
The wealth advisor decided to team up with an experienced life settlement broker to help unravel the roadblocks and cut through the red tape with the insurance carrier. Asset Life Settlements was honored to be chosen for the task.
The advisor explained to the Asset Life team that the insured is a 92 year old female who had purchased the $3 million ILIT policy years ago for estate planning purposes. Although the insured suffers from dementia, her other health indications are strong and her life expectancy is unpredictable.
The trust’s beneficiaries (two sisters) were struggling to maintain the premiums which had escalated to $320,000 per year. The financial burden presented by the costly premiums placed the policy at risk of lapsing.
During a review of the trust documents, the advisor learned that the original Trustee for the trust was now deceased, as was the original Successor Trustee (an older daughter). Thus, when the two surviving sisters — one of which had been appointed the new Successor Trustee — attempted to communicate with the carrier, they ran into a series of obstacles.
Without the proper legal documents in place, the carrier refused to legally recognize the Successor Trustee as the owner of the policy.
At this point, the financial advisor contacted Asset Life Settlements to request assistance in opening the lines of communication with the carrier.
Following a series of joint conference calls between Asset Life Settlements, the financial advisor, and the carrier, the matter was resolved. The carrier agreed to cooperate in the process and Asset Life Settlements as subsequently sent the case to market to begin the bidding.
Asset Life Settlements was successful in negotiating multiple offers from 6 different buyers. Gross offers ranged from $850,000, to the highest winning bid of $1,400,000 (gross amount). After payment of commissions, the sisters received $1,200,000, representing 40% of the policy’s face value.
Key Take-Aways
• Selling an ILIT policy that no longer has relevance, and then repurposing the cash proceeds, is often a financially prudent course of action.
• Working with a life settlement broker (who will negotiate with multiple buyers) is essential to obtaining the highest offer for your client.
• Asset Life Settlements has the secondary market expertise to obtain the highest possible settlement offer for the seller’s policy.
Call us at 1-855-768-9085 to explore your client’s eligibility for a life settlement or to request a free policy appraisal.