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Blog2018-09-13T13:32:26+00:00

The Life Insurance Trust Company Process

In our last post, we highlighted the fact there finally is a solution for those TOLI trustees that share a common problem - orphan trusts - life insurance trusts with grantors who have no other business relationship with the bank or trust company. That solution is Life Insurance Trust Company (LITC), an affiliated company started under the ITM TwentyFirst umbrella.  Many TOLI trustees have reached out to us in the past year to describe the issues they have with orphan trusts, namely, they represent mostly liability and little revenue. Most TOLI trustees do not have the economy of scale needed to manage life insurance trusts profitably without additional revenue from the TOLI client and housing orphan trusts simply makes no business sense.  Even those trustees with TOLI clients with other revenue generating assets have contacted LITC to see if moving their ILITs makes sense and it can. LITC is a specialty asset company and can lift those ILITs out without tampering with the other more lucrative opportunities the bank or trust company has with that client. But how does LITC do that? The 5-step process is rather simple. NDA: As with most business transactions the first step starts with a [...]

Life Insurance Trust Company Completes Bulk Transfers of Life Insurance Trusts

Life Insurance Trust Company Completes Bulk Transfers of Life Insurance Trusts Establishes unique and proven process to transfer ILITS from Banks and Trust Companies Sioux Falls, South Dakota, September 18, 2018: Life Insurance Trust Company (LITCO), the only trust company focused exclusively on life insurance trusts, recently completed two court approved bulk transfers of life insurance trusts. The financial institutions involved moved portions of their Irrevocable Life Insurance Trust (ILIT) portfolios to LITCO as part of plans to scale back servicing as a fiduciary for ILITs. “We launched LITCO in late 2017 as a unique option for financial institutions seeking to exit the ILIT business, while providing an excellent alternative for their clients. Historically, exiting ILITs has been a cumbersome process for financial institutions, often involving one-off transactions. We developed an extremely efficient way for banks and trust companies to transfer ILITS in bulk to LITCO through a court approved process. We look forward to helping many more institutions looking to transition out of the ILIT business,” said Kurt Gearhart, CEO ITM21st, the parent company of LITCO. Life Insurance Trust Company was launched by ITM21st, a pioneer in the insurance trust market. LITCO is unique in that it will [...]

What A TOLI Trustee Can Learn from Existing Court Cases – Part 2

In our last post, we reviewed three court cases that guide TOLI trustees dealing with the liability that managing life insurance brings.  In this post, we will review three more cases that will add to that guidance. French, et al. v. Wachovia Bank N.A. The Wachovia case grew out of a policy replacement that generated a large commission for Wachovia’s insurance affiliate and centered on the beneficiaries claim that Wachovia was “self-dealing.” The grantor of an ILIT approached Wachovia after growing disillusioned with his existing trustee. The ILIT held two “underperforming” whole life policies. Wachovia insurance advisors developed a proposal to exchange the two existing policies for a John Hancock Guaranteed Universal Life policy providing “the same death benefit but at a much lower premium.” Documentation was created outlining the pros and cons of the transaction – the new policy would have no premium flexibility and little cash value; while the existing whole life policies had some premium flexibility and develop significant cash value. The grantor signed the policy application but balked when provided with a release waiver that  disclosed Wachovia would receive compensation for the transaction. Nevertheless, Wachovia moved ahead with the policy replacement without obtaining a signature on [...]

What A TOLI Trustee Can Learn from Existing Court Cases – Part 1*

The majority of trust owned life insurance (TOLI) settlements do not come after a court case, they are paid out behind closed doors to avoid publicity.  But the cases that wind their way to court guide the TOLI trustee hoping to avoid liability.  In this two-part series we will review several cases and outline the key takeaways for a TOLI trustee. Stuart Cochran Irrevocable Trust v. KeyBank, NA  The KeyBank case, was decided in March of 2009 and centered on a life insurance policy replacement. KeyBank, the successor trustee to an ILIT exchanged the policies in the trust for two variable life policies tied to the equity market, totaling $8 million in death benefit, in the first quarter of 1999, shortly after taking over the ILIT. After 9/11, the equity market dropped and in both 2001 and 2002 the policies lost money.   Around this time the grantor, age 52, had a financial setback and announced he would no longer fund the trust.  KeyBank paid for an outside review firm who found that with no additional premium the policies could not be expected to run past age 70 of the insured. The agent for the grantor suggested the purchase of a [...]

The Top Five Mistakes Trust Owned Life Insurance (TOLI) Trustees Make

Just over a decade ago, we began managing life insurance policies for TOLI trustees.  In that time, we have grown from a handful of dedicated team members to the largest life insurance policy management firm in the country with 175 employees and hundreds of clients.  It is no wonder the growth has occurred.  Life insurance is a confusing asset, and the tax and estate planning requirements around trust administration are cumbersome. Having an expert handle this asset makes sense.  Over the years, trustees and advisors have asked us for a list of the most common mistakes we have seen made by TOLI trustees.  We have whittled the list down to the five mistakes we see most often. Failing to Price Services Correctly: Trustees often price insurance trusts as an accommodation. In an ITM TwentyFirst survey, we found one third of trustees charged under $750 per trust and 15% charged only $250-$500. To properly manage life insurance, you need an expert administrative staff, competent legal counsel and life insurance specialists who understand a complex asset. Can you provide that with a pricing model this low?  Most trustees charge $1,000-$1,500, which is more in line with costs and should be the starting [...]

Finally, a Place for Orphan ILITs!

The last few years have been a tumultuous time in the life insurance trust business.  The prospect base is shrinking after the Tax Cuts and Jobs Act raised the federal estate tax exemption from $5.49M to $11.18M per person.  Today only 1 in 1,000 estates affected by the estate tax (1).  The asset class has become even more cumbersome to manage, as policy performance has suffered and sophisticated policies with more moving parts leave trustees with a greater chance for something to go wrong, just when the society around us seems to have become more litigious – especially in the life insurance space. Many trust-owned life insurance (TOLI) trustees are questioning the viability of their TOLI business model - and perhaps some should.  Especially those whose portfolio includes many orphan accounts – those grantors whose only business with the bank or trust company rests in a trust that generates minimal revenue, but a considerable liability. The answer?  It’s a three-step process: Review all the ILITs in your portfolio and determine which represent significant other revenue for your firm. ILITs without additional revenue represent little more than a liability to most banks and trust companies. For those orphan ILITs with clients [...]

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This Is A Custom Widget

This Sliding Bar can be switched on or off in theme options, and can take any widget you throw at it or even fill it with your custom HTML Code. Its perfect for grabbing the attention of your viewers. Choose between 1, 2, 3 or 4 columns, set the background color, widget divider color, activate transparency, a top border or fully disable it on desktop and mobile.