Sheptoff
Investment Group llc

Special Considerations for Trustees:

Trustees have special obligations. As a result, a trustee’s need to review life insurance is magnified. You are charged with maintaining the integrity of the trust for all trust beneficiaries. This includes both current trust beneficiaries as well as future (remainder) beneficiaries. Failing to maintain a trust’s portfolio places a trust’s objectives at risk and exposes you, as trustee, to potential lawsuits by disappointed beneficiaries.

Just as you might manage a portfolio of stocks or bonds, life insurance policies held by a trust need to be periodically reviewed. Failing to actively supervise a trust’s portfolio of debt and equity assets, could cause a trust to fail to meet its objectives and adequately provide for beneficiaries. Failing to adequately supervise a trust’s life insurance contract(s) can also expose a trust to risk and a trustee to liabilities. While you might be familiar with the risks of an investment portfolio, consider the risks that life insurance might be exposed to:

Many life insurance policies were designed with more aggressive assumptions than may have ultimately been realized by the life insurance contract. In an effort to minimize premiums, these contracts were often designed in a manner that puts the death benefit at risk if the original assumptions were not consistently achieved. What were these assumptions?

1. if the trust holds universal life policies, many of these were illustrated with higher crediting rates than current conditions merit,

2.if the trust holds variable life policies, these may have been illustrated and purchased based on gross rates of 10%, or more, as the average annual return.

As a result, many policies that were designed to endow at $1 at age 100, will not withstand the current financial environment.

If these issues occur more premiums may be required to keep the policy in force, or the policy may fail altogether. However, if the policy is held in trust, a client may no longer be in a position to make gifts beyond the planned premium paying period, or may refuse to make gifts, placing the policy in jeopardy.

Not all life insurance companies are the same. Many life insurance company ratings have changed in recent years, and few have been upgraded. While many factors come into play when considering a life insurance company, a company’s ratings are a strong indicator of its financial stability and claims paying ability.

The good news:

-Life insurance has become more cost-effective in recent years.

-Newer policy designs may offer stronger guarantees for their death benefits, with the potential for lower premiums or more death benefit for the same premium costs.