For trustees administering a broad range of trust accounts, the annual trust asset review is one of the most consequential — and consequentially underestimated — tasks in the calendar year. It isn’t simply a compliance checkbox. It is the mechanism by which trustees demonstrate that they know what they hold, understand what it’s worth, and can defend every asset’s continued place in the portfolio.
Trusts today hold far more than publicly traded stocks and bonds. Life insurance policies, private equity interests, real estate, LLC membership interests, and closely held businesses are commonplace — and each one requires a disciplined, asset-specific approach. Here’s what the regulatory framework requires and what sound practice looks like across the full spectrum of trust assets.
The Regulatory Foundation: One Standard, Many Asset Types
The annual review obligation is not limited to ILITs or any particular trust structure. Under 12 CFR 9.6(c), at least once during every calendar year, a national bank must conduct a review of all assets of each fiduciary account for which the bank has investment discretion to evaluate whether those assets are appropriate, individually and collectively, for the account. The parallel requirement for federal savings associations is found at 12 CFR 150.220.
That phrase — individually and collectively — matters. The review isn’t just about whether each asset passes muster on its own. It’s about whether the mix of assets still serves the trust’s purposes and the beneficiaries’ interests.
The OCC’s Unique and Hard-to-Value Assets Handbook was developed to address the full range of assets that trust accounts hold — including marketable securities, real estate, mineral interests, and closely held or private companies — recognizing that many of these asset classes require specialized expertise, controls, and valuation methods. The review obligation applies to all asset types, but the depth of each review must be calibrated to the specific characteristics and risks of what’s being held.
Why the Asset Mix Matters for Review Design
Marketable securities have readily observable prices and liquid markets. Most other trust assets don’t. Unique assets are not traded on a financial market and therefore do not have readily determined values — in contrast with equities and bonds, whose values are readily ascertained. The specific attributes of a unique asset can affect not only its value but its marketability. That distinction has real implications for how trustees approach each annual review.
Marketable Securities
The review centers on suitability; whether holdings remain appropriate for the account’s investment objectives, risk tolerance, and time horizon. Confirm that allocations haven’t drifted from policy, that investment restrictions in the governing instrument are being observed, and that the portfolio collectively still serves the account’s purposes.
Life Insurance
Life insurance, whether held in an ILIT or another trust structure, requires a fundamentally different review than any other asset class. Policies are long-duration contracts whose performance depends on ongoing assumptions about mortality charges, credited interest rates, and premium funding. A policy that was performing well at inception may be quietly deteriorating.
Based on industry experience, approximately 20% of all trust-owned life insurance policies have issues at any given point in time, typically involving lapse risk, significant policy loans, or premium inadequacy. The annual review should include the current in-force illustration, projected performance to life expectancy, loan status, premium payment history, and whether the policy type remains appropriate for the trust’s objectives. For ILITs specifically, the review also encompasses Crummey letter compliance, gift documentation, beneficiary information, and trust’s income tax return filing status.
Read More: Red Flags for Policy Underperformance and What TOLI Trustees Should Do
Real Estate
Real estate assets can represent significant holdings in fiduciary accounts, spanning residential, retail, office, agricultural, industrial, and vacant land. The annual review should address current valuation, property condition, lease and rental income status, insurance, taxes, environmental status, and whether retention remains appropriate given beneficiary needs. A bank fiduciary may face liability from secondary beneficiaries when holding a nonproductive asset — documenting the rationale for retention, or a disposition plan, is essential.
Private Equity and LLC Interests
These holdings present compounded review challenges: no market pricing, potentially complex ownership rules, and limited exit options. Risk increases because these assets often require special expertise to manage and are frequently hard to value — some presenting liability concerns that extend beyond the amount invested. The review should examine recent financial statements, available valuations, distributions, governance rights, and liquidity provisions.
Closely Held Businesses
A majority interest in a closely held business carries far more responsibility than a minority position, and requires specialized accounting and control systems to properly monitor income streams and related taxes. The annual review should assess financial performance, valuation, key-person dependencies, succession planning, buy-sell agreement provisions, and the continuing appropriateness of holding the interest given beneficiary needs.
Read More: The Many Duties and Responsibilities of ILIT Trustees
Documentation and Audits
The annual review must be documented — reflecting not just what was reviewed, but that the account’s principals understand the findings. For problem assets, communication to grantors and beneficiaries must be affirmative and specific, with their acknowledgment on file. A well-documented review is the foundation of a trustee’s liability defense. An undocumented review leaves a trustee unable to demonstrate that fiduciary judgment was exercised at all.
Fiduciary activities must also be audited at least once each calendar year per 12 CFR 9.9(b) and 12 CFR 150.440(b), by someone other than the account administrator. Audits should verify that reviews were completed by qualified personnel, valuations are documented, and client communications were issued and acknowledged.
The Bottom Line
No matter how unique assets are received by a bank acting as trustee, proper administration and operational controls are critical. A rigorous annual review process — calibrated to each asset type, completed by qualified personnel, communicated clearly, and thoroughly documented — is the most reliable way to identify problems before they become liability events, and to demonstrate the sustained fiduciary stewardship that trust beneficiaries deserve.
Managing annual trust asset reviews across a complex portfolio is an ongoing commitment — one that requires qualified personnel, reliable systems, and consistent documentation year after year. At LITCO, that process is built into our administration system by design. To learn more about our corporate and successor trustee services, reach out to our team.
