Life insurance is an important investment. Trust-owned life insurance policies are inherently significant sums of money and therefore it’s vital that they’re managed appropriately. Policies of a million dollars or more are common: many policies are valued at tens of millions of dollars. So why is it that these policies are often treated with less care than other investments?
Some grantors, hoping to save money, look to a non-professional trustee, usually a family member or friend, or a professional (attorney, CPA, advisor) they already have a relationship with. These people are not trained to act as a trustee, and thus it’s a short-sighted mistake to hand over the policy management of an asset worth millions. Grantors often believe that the cost of a professional trustee is much higher than it is. The real costs of leaving this policy in the hands of someone not trained to handle it correctly can be much higher, when the policy or trust is mismanaged, and personal or professional relationships are damaged or severed.
Managing a trust—especially a trust funded by a complex asset like life insurance—can be a burden. A family member, friend, or professional may feel uncomfortable saying no when asked, even if they don’t have the requisite knowledge. Often this is not fully understood by either party until it is too late and the damage is already done.
Often the grantor will rely on a professional in a related field, such as an attorney, CPA or banker, assuming that their somewhat-related knowledge of law and finance will be enough to guarantee success. But the management of life insurance requires specialization. Ironically, a grantor will go to an attorney whose practice is focused solely on estate planning, and assume that person has the skills necessary to manage the asset just because they wrote the document that houses it. This is not always the case, and it can lead to mismanagement causing other problems down the road.
At the Life Insurance Trust Company, your ILIT is serviced by individuals who are managing thousands of policies and trusts. They are dealing with these assets every day, and this specialization provides insight that can be gathered nowhere else. They are the only trust company focused only on one asset class, and because of that, their professional management personnel develop skills no other trustee can.
A corporate trustee can stay above the fray. With a friend, family member or professional, decisions can be colored by personal relationships, straining trustee objectivity. Beneficiaries may believe the trust is tilted to favor others and will question how the trust is being handled. When large sums of money are distributed without independent and impartial decision-making, the ensuing stress and discord can tear a family apart—certainly not the intention of any grantor. Corporate trustees are free of personal and other business relationships, leaving them able to make prudent decisions without outside interference. This helps ensure the success of the policy and trust for all involved.
Managing a policy and trust takes time and specialized knowledge. Who among us has the extra time needed to effectively manage an asset for someone else, when we barely have the time to keep our own affairs in order? And often, a grantor is asking a friend or family member to provide the services free of charge, without offering any training or help.
Professional wealth advisors tasked with managing a life insurance trust usually do it as a favor or a convenience for a client. Since it’s not their primary job, they rarely apply the same care, skill, and effort that they put into their other business services. After all, it is usually an accommodation in the interest of maintaining other business. Many legal and accounting firms have partners and associates acting as life insurance trustees without direct corporate oversight. Often management is even unaware of the liability. This is a recipe for disaster for the professional and the firm, not to mention the beneficiaries of the trust.
While professionals may have some understanding of the tax and legal implications of a life insurance trust, and sometimes even the staff to patch together some sort of accounting and administration system, they still cannot begin to match the capabilities of a corporate trustee. And a friend or family member more than likely has no understanding of trust administration or policy management. Typically, they have only a checkbook and a trust mail drop.
A corporate trustee provides much more. For example, at the Life Insurance Trust Company (LITCO) we offer:
- The Highest Fiduciary Standard
As a corporate trustee, LITCO bears a real responsibility to the beneficiaries and grantor to maximize the value of the policy. Most life insurance agents do not share this fiduciary standard, and non-professional trustees are held to a lower standard. LITCO is held to the highest standard.
- Trained Specialists
All LITCO administrators undergo rigorous training when hired, and they all take part in continuing education to keep them abreast of changing trust laws and administration techniques. The remediation team includes Certified Life Underwriters (CLU), the highest designation in the life insurance field. Most of the remediation team has well over a decade of experience managing life insurance. Because they manage tens of thousands of policies, they have seen and successfully fixed thousands of policy issues.
- A Proprietary System
Over the years, the LITCO service team has developed a proprietary system that allows them to manage policies effectively while minimizing the possibilities for errors. This system provides administrators with ticklers and prompts so that nothing goes neglected, and it keeps all policy documents and information safe and secure for retrieval, whether they’re needed next year or 10 years from now.
- An Annual Review
All clients of the Life Insurance Trust Company receive an annual policy review. This is a proprietary evaluation of the policy that tracks performance and points out any issues years before they can become a problem. The staff has access to advanced premium optimization techniques that, in certain situations, can shave thousands off the cost of a policy, a service that no other trustee provides.
- A Proven, Prudent Decision-Making Process
Your goals may change over time, and life insurance policies often do not perform as expected. How are you going to manage the policy and trust over time without a process? At LITCO, a team that includes an administrator, a life insurance expert, and a Trust Committee analyzes all options before any decisions are made, ensuring a prudent choice by following proven procedures.
A corporate trustee does not die, move, or change priorities. The ongoing management of your trust continues, and even if the individual you work with changes, the corporate culture and management bring the same level of services. With a non-professional trustee, even a long vacation can lead to a late or missed premium and cause irreparable damage to a policy.
We understand that these policies are personally important to you, and if you wish to have a family member, friend or trusted advisor as part of your management team, The Life Insurance Trust Company can accommodate you. We can act as co-trustee, providing all of the back-office services, administration, and analysis while working directly with your named co-trustee, providing the best of both worlds for you.
For further information reach out to Leon Wessels at: firstname.lastname@example.org or (605) 574-1703