May 1, 2003 12:00 PM

By Richard L. Harris, managing member, BPN Montaigne LLC, Clifton, N.J., and Russ Alan Prince, presi

It's getting more difficult for trustees to exercise prudent fiduciary responsibility in the life insurance arena. They must contend with developments affecting the policy's performance (including premiums that continue beyond the projected self-funding date and lower or negative rates of return), the availability of new products (with lower expenses, death-benefit guarantees, mortality changes and underwriting-standards changes) as well as changes in the law. And because for so many trustees, life insurance itself is a black box — something they don't understand very well — the trustee usually does not have the knowledge, experience or skill to do a proper analysis.

Trustees' failure to adequately administer life insurance can have a major, adverse impact on the death benefit paid to beneficiaries. Yet, in a telephone survey conducted last March of advisors to the very wealthy, we found most of those responsible for monitoring trusts had their heads in the sand about life insurance. A full 83.5 percent of the 297 advisors who reported acting as trustees also said that they did not have stated guidelines and procedures for handling life insurance. (See “Who's Minding the Trust-Owned Insurance?,” page 63.) Given the lowered interest rates and market downturn, there is a very good chance that a number of the policies under their care are not performing as projected, which could result in a failure to deliver when the grantor dies. Yet the trustee might be blissfully unaware of the problem.

Topics of Interest

Estate Tax	Donor Advised Funds
GSTs	Family Offices
Private Foundations	Life Insurance
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Topics of Interest

Estate Tax	Donor Advised Funds
GSTs	Family Offices
Private Foundations	Life Insurance
2010 Tax Act News	Industry Trends Surveys

E-Newsletter Signup

2011 Trust Glossary

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50 Years Ago This Month

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50 years ago, in May 1962, we featured articles such as: "Future of Canadian Trusteeship" by Arthur H. Mingay", "Training Trust Employees" by Ian M. Marr, "What is a Trust Officer?" by Eric J. Brown, and "Selling Services" by Donald I. Webb.

Conrad Teitell's Guide to Tax Benefits For Charitable Gifts

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