For financial advisors, estate planning attorneys, and life insurance agents, the management of Irrevocable Life Insurance Trusts (ILITs) is a challenging yet crucial part of your practice. These trusts serve as an effective tool for wealth transfer and tax mitigation, but they also come with complexities that can overwhelm even the most seasoned professionals. With the ILIT landscape continuously evolving due to changing tax laws and market conditions, it is important to understand how choosing a dedicated ILIT successor trustee can benefit both you and your clients.
The Growing Importance of ILITs in Estate Planning
The USA is currently home to 37% of the world’s millionaires, with approximately 5.5 million high-net-worth individuals (HNWIs) who hold over 41 million in liquid investable assets. This number has risen by an impressive 62% over the past decade, outpacing the worldwide growth rate of 38%. This growth, coupled with the potential upcoming 2025 estate tax exemption sunset, underscores the heightened relevance of ILITs in our current financial landscape.
The estate tax sunset could have far-reaching implications for an estimated 1.3 million households and their estate planning strategies. As a result, many clients with substantial estates are turning to Irrevocable Life Insurance Trusts as an option for tax-efficient wealth transfer solutions. However, the administration of these trusts is becoming increasingly intricate.
Read More: Can an ILIT Help Your Clients Prepare for the 2025 Estate Tax Sunset?
Challenges in Managing ILITs
Managing and administering Irrevocable Life Insurance Trusts is a nuanced and complicated task that requires deep industry knowledge. An ILIT trustee is responsible for three to four decades of trust and policy management, and issues around policies only increase as they age. 34% of all TOLI policies are high risk, while funding is often the largest issue, there are three other common causes:
- Complexity and Liability: Most corporate trustees are hesitant to manage ILITs due to the low revenue and high fiduciary liability associated with them. Policies within ILITs are often outdated, based on older mortality tables, and designed under different market conditions. This necessitates constant monitoring and remediation to ensure policy performance and compliance.
- Attrition and Policy Performance: ILIT portfolios typically face an approximate 6% attrition rate annually due to policy lapses, surrenders, or mortality. Without proactive client engagement and education, these rates can climb higher. Policies might underperform leading to increased carrier costs and grantors’ financial strain.
- Aging Policies and Insureds: As insured individuals age, the costs of maintaining policies rise significantly, particularly after age 80. Ensuring that the trust has adequate funds to support these policies becomes critical. Trustees need to explore all options, including death benefit reductions or life settlements, to maximize the trust’s benefits.
Learn More: Navigating Life Insurance Trusts Beyond Policy Maturity
Benefits of Partnering with a Dedicated ILIT Trustee
Even as a professional with industry knowledge of irrevocable life insurance trusts and estate planning, managing the day-to-day administration needs can be challenging and time-consuming. Working with a successor trustee who is dedicated only to ILIT administration can benefit you and your clients in many ways.
Expertise and Focus: Life Insurance Trust Company, backed by ITM, the largest life insurance policy manager in the country, specializes in ILIT management. Aligning with a specialized trustee helps mitigate risks and enhances the trust administration process. It also allows a partnership with advisors and attorneys without competing for assets.
Policy Remediation and Risk Management: Effective policy remediation is crucial. Life Insurance Trust Company has well-defined processes to handle policy reviews and address issues proactively. This includes regular assessments of policy performance, exploring options to manage premiums, and conducting life expectancy reports to inform decision-making.
Optimize Your Time: ILIT administration is time-consuming. When you partner with a successor trustee who manages the day-to-day administration, you gain back valuable time that you can use to focus on your client’s other needs.
Increased Client Satisfaction: By partnering with a specialized trustee, you ensure that your clients receive dedicated and knowledgeable service. This not only preserves the value of the ILITs but also enhances client satisfaction and trust in your advisory services.
Evaluating Your Current Approach
It’s essential to periodically assess whether your current ILIT management strategy is meeting your client’s needs effectively. Consider the following:
- Are you facing high attrition rates in your ILIT portfolio?
- Do you have the in-house expertise to manage the varied and complex life insurance policies within these trusts?
- Are your clients informed about the importance of maintaining their trust and the potential impact of policy underperformance?
- How do you handle policy remediation and risk management?
If any of these questions raise concerns, it might be time to explore a partnership with a dedicated successor trustee.
Is It Time To Simplify Your ILIT Management?
The administration of ILITs requires specialized knowledge and a proactive approach to manage effectively. With the increasing complexity of these trusts and the potential for significant tax law changes, aligning with a specialized trustee like Life Insurance Trust Company can provide the expertise and resources necessary to navigate these challenges successfully. By doing so, you can ensure that your clients’ ILITs are managed efficiently, reducing fiduciary liability while enhancing client satisfaction and trust.
Life Insurance Trust Company successor trustee services are here to support you in delivering exceptional service to your clients. Don’t let the complexities of ILITs overwhelm your practice. Request a consultation to learn more about how we work with financial advisors, attorneys, and life insurance agents for better ILIT management.
