Bank Trust Officer Relies on Insurance Advisor’s Expertise and Recommends Client Sell $3.5M Trust-Owned Policy

As fiduciaries and professional trustees, bank trust officers are responsible for managing all aspects of a trust. Duties include managing the trust’s investments, preserving and optimizing cash assets, paying bills, maintaining records, filing tax returns, overseeing life insurance coverage, and distributing proceeds to the beneficiaries.

While most corporate trustees have a background in accounting and finance, many rely on the expertise of life insurance professionals to help them monitor the performance of trust-owned life insurance (TOLI).

The following case example illustrates how insurance advisors have an opportunity to expand their practice by networking with bank trust officers whose fiduciary duty extends to the proper management and disposition of a TOLI policy.

When Trust-Owned Life Insurance Is No Longer Justified

As the cornerstone of many estate plans, trust-owned life insurance is a tool used by the grantor of an estate to minimize the tax burden for beneficiaries and for payment of any final expenses.  The annual policy premium is funded using cash assets held in the trust. But as with any life insurance policy, frequent monitoring and annual policy reviews are necessary to ensure the policy is performing as originally intended.

Often during the annual policy review, a bank trustee will encounter situations where premiums have escalated as the insured advances in age. In many cases, the original purpose for policy as it relates to offsetting estate tax obligations is no longer relevant due to recent changes in the federal estate tax exemption.

Depending on the circumstance, bank trust officers may be faced with a dilemma as to the disposition of a policy whose escalating premiums are eroding the cash liquidity in the trust. When that happens, trustees rely on their network of experienced insurance advisor to discuss all the options. Surrendering the policy or allowing it to lapse should be avoided if possible.

Bank Trust Officer Relies on Insurance Advisor’s Expertise

Such was the case in the following life settlement transaction involving the sale of a $3.5 million trust-owned life insurance policy.The insured’s deceased husband had purchased the trust-owned policy years prior to provide liquidity for the beneficiaries to pay estate taxes and final expenses. Over time, however, circumstances changed. The insured’s tax burden was no longer an issue and the expensive premiums could not be justified. The policy had no cash surrender value and allowing the policy to lapse was not an option.

The trust officer chose to bring in an experienced insurance advisor from his network of professional associates. The agent, who had expertise with life settlement transactions, conducted a formal policy review. After considering the agent’s findings and the options outlined by his respected colleague, the trust officer felt it was his fiduciary duty to recommend that the client sell the policy.

Asset Life Settlements was honored to be chosen as the broker representing the policy seller in the transaction. After intense negotiations, we were successful in generating multiple bids from 3 buyers until we obtained the highest offer of $1.4 million. The insured and the beneficiaries were thrilled with the outcome which not only preserved, but also optimized, the cash assets in the trust.  

Call us at 1-855-768-9085 to explore your client’s eligibility for a life settlement or to request a free policy appraisal.  Or, feel free to use our online calculator to receive an immediate preliminary offer to discuss with your client.