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Tuesday, October 04, 2005

Monitoring Insurance Policies In Trusts

Owning life insurance through irrevocable trusts is a common estate planning device to limit exposure to U.S. estate taxes. The trustee of the trust has some standard jobs, including receipt of premium funds and payment of premiums, and Crummey notices. What is often overlooked is the trustee's obligation to exercise oversight of the policy.

While in practice probably not observed by any but the most scrupulous corporate trustees, all life insurance trustees should give due consideration to the following:
  • Analysis of the proposed carrier, before the policy is acquired.
  • Analysis of the proposed or existing policy.
  • Regular monitoring of the insured's health, to determine whether premium payments should be continued and whether a different policy with a different anticipated scope of coverage is advisable.
  • Annual consultation with an insurance agent to review the policy and the factual situation.
There are consultants who can be engaged by the trustee to assist in these matters (e.g., Advicon). By engaging in these activities, a trustee will go a long way towards both doing a good for the trust beneficiaries and protecting itself from litigation by disgruntled beneficiaries.
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