Top 5 TOLI Mistakes Made by Estate Planning Attorneys and CPAs2019-02-13T16:38:36+00:00

Top 5 TOLI Mistakes Made by Estate Planning Attorneys and CPAs

1. Having a Non-professional Serve as Trustee:

The easiest choice is often not the best choice, for example naming a non-professional – a friend or family member of the grantor – trustee of the ILIT you just wrote.  Life insurance is not an asset to be managed by a novice.  A simple mistake can cost the trust hundreds of thousands, maybe millions of dollars.  One could argue that taking on the responsibility yourself without considerable outside help is also a Top 5 mistake.  How is the policy reviewed?  Is there a non-biased expert in charge of monitoring policy performance?

2. Administrative miscues:

In our decade-plus serving the TOLI field we have found the simplest things – sending the Crummey letters on time, making sure the premium is paid – can trip up even the most competent professional trustees.  The problem is exacerbated when a non-professional or someone whose business model is not focused on TOLI administration is responsible.

3. Trustee succession planning:

Even in the best situations – when a non-corporate trustee does a sufficient job, the issue arises when the trustee moves on – retires or passes away.  What happens to the ILIT?  Is the transfer of responsibilities seamless?  A corporate trustee solves the problem and will outlive the ILIT.

4. Not valuing the role of a fiduciary:

While a non-professional may be held to a lower standard, there still are fiduciary responsibilities that must be upheld.  Does a family member or friend even understand that?  If you are the trustee, do you realize the level of responsibility that you have taken on?  Is the fee you collect worth the possible liability?

5. Lack of life insurance knowledge or expertise:

Certainly, a non-professional serving as a favor to the grantor cannot be expected to understand the nuances of increasingly sophisticated life insurance policies.  Even a professional, such as yourself, who may have an understanding of life insurance, cannot be an expert in managing these assets worth millions.  Life insurance takes care and tracking – and the management of specialists in order to maximize its value to the beneficiaries.

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Total Assets

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Asset Value

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Fiduciary Liability

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Insurance Premiums

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High Risk Assets

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Annual Remediation Triggers

Key

Total Assets:
Number of life insurance policies held in trust that you have administrative responsibility

Asset Value
The total value of your trusts is determined by calculating the value of all future life insurance death benefits

Fiduciary Liability
Since your primary fiduciary duty is to protect the interests of ILIT beneficiaries, your fiduciary exposure is the sum of all death benefits held in trust

Insurance Premiums
The amount of annual premiums required to keep insurance policies active and to protect the interests of your trust beneficiaries

High Risk Assets
The amount of trust value in eminent danger and requires immediate action to prevent loss of benefits to your client(s); the trust beneficiaries

Annual Remediation Triggers
The annual number of policy management triggers that require professional oversight and effective remediation to protect trust values

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Comprehensive ILIT portfolio analysis
Portfolio totals and averages
Policy risk ratings
Operational costs
Administrative duties
TOLI policy management Information
Remediation requirements
An ACTION plan

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