Best Practices for Managing Life Insurance Trusts

Best Practices for Managing Life Insurance Trusts


Irrevocable life insurance trusts (“ILIT’s”) are facing fiduciary challenges in asset management and administration. Litigation directed toward trustees of ILIT’s for breaches of fiduciary duty is on the rise due to tax laws and technical complexities of corporate trustees and ILIT administration.


Breached fiduciary duties of ILIT trustees can result in serious liability.  ILIT fiduciaries should timely oversee independent evaluations of the ILIT and policy performance, act independently, document their decisions and deliberations, and when necessary obtain and disclose consents or waivers from ILIT beneficiaries, and/or grantors.


Annual Reviews and policy monitoring adds value to support of ILIT trustees in executing their duties. Once suitable trustees for ILIT’s are selected administrative and fiduciary duties of obligation must be satisfied.


Some financial institutions are no longer wanting to serve as ILIT trustees due to shifts in the marketplace and are instead appointing non-professional trustees. That said, clients who are appointing inexperienced trustees/non-professional trustees should expect to seek legal counsel to successfully carry out their duties as these trustees most likely will not be familiar with such things as technical trust concepts, state trust laws, trust administration protocols, and omission and error coverage that could protect them and the trust beneficiary in the event of a breach.  Also, one must be take into consideration the closeness of the trustee.  If there is too close of a relationship, the trustee could prioritize the grantor’s interests over those of the trust.  So to help alleviate the possibility of undermining the goal of the client for the trust and exposing the trustee to legal claims of breach, one should be wary of appointing a friend or family member (FFM).  Instead, consider appointing an unrelated professional or independent consultant/service provider as your trustee.  Lastly, make sure to perform regular evaluations.


Contact EBN for further information today!