Currently in the trust-owned life insurance (TOLI) world, we have sailed into a perfect storm of issues that make outsourcing your TOLI trusts more compelling than ever. There are plenty of articles on the varied reasons for outsourcing. And all, or at least the majority, of them are valid. Here are three stand-out reasons to outsource:
- The TOLI market is not growing, so why allocate resources? While life insurance trusts can serve many purposes, most trusts were set up to pay federal estate taxes. In 2017, it was estimated that only two in every 1,000 estates would be affected by federal estate taxes, and that was before the Tax Cuts and Jobs Act more than doubled the estate tax exemption. Now, only one in every 1,000 estates will be affected (1). Your prospect pool has shrunk dramatically, so why designate capital, human or otherwise, to a business line that is, at best, stagnant? By outsourcing, you can free up internal resources for other, much more profitable, services.
- Your liability and workload will increase. Take it from someone who manages thousands of policies – they are getting harder to handle. A decade of historically low interest rates, a volatile equity market and a barrage of increasingly sophisticated products have combined to make the task of maximizing the value of a policy harder than ever. Because of the changes in estate tax laws, the number of grantors that will be asking you what they should do with their policies will be increasing – dramatically. And your fiduciary duty will still be to maximize the asset for the beneficiary. Will you want to spend the time to analyze all the options? Will you even know how? By outscoring to experts, this will no longer be an issue for you.
- You will know your costs and even lower your costs. Most trustees handling life insurance trusts are unaware of all of the expenses incurred. By outsourcing the servicing of this asset, you will be able to quantify your costs. And in most instances, the cost of outsourcing is less than keeping the task in-house. The economy of scale of managing thousands of trusts brings the cost per trust down to an affordable figure, one of the great advantages an outsource firm has, especially dealing with a cumbersome asset like life insurance. Knowing your exact costs, and potentially lowering them, may be the most persuasive reason to outsource in this competitive world.
Those firms that have made the jump to TOLI outsourcing have found the administration of their irrevocable life insurance trusts immediately less burdensome, and their level of service to clients dramatically increased. And the economics of the change made logical business sense.
For a personalized analysis, contact John Barkhurst at firstname.lastname@example.org or call 319.553.6229.
- Center on Budget and Policy Priorities, https://www.cbpp.org/research/federal-tax/ten-facts-you-should-know-about-the-federal-estate-tax