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:

  1. 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.
  2. For those orphan ILITs with clients that have no other assets at your firm, contact Leon Wessels at Life Insurance Trust Company (LITC) to develop a game plan for removal of those ILITs. While the life insurance asset will be housed at LITC, any other revenue relationships that could be developed would remain with you.
  3. Review your options with the rest of your ILITs. If you are not now utilizing the Managed Solution through ITM TwentyFirst, consider utilizing that service which allows you to still house the ILIT, but outsource the administration of the trust and the tracking and management of the policy.  The Managed Solution option allows you to efficiently and economically raise the level of service to your most profitable clients.

The times have changed dramatically in the bank and trust space, but great reward awaits the business leaders who review their product line and seize growth opportunities while effectively managing or minimizing those areas that bring the least to the bottom line.

Outsourcing has always been a viable option in the right situation and today more than ever in the trust owned life insurance (TOLI) market outsourcing and trimming client lists will cause less liability and greater profits.

For more information on how you can increase profits while limiting your liability, contact Leon Wessels at 605.574.1703 or lwessels@lifeinsurancetrustco.com.

  1. Center on Budget and Policy Priorities