Dec 1, 2010 12:00 PM

A recent court ruling provides valuable guidance for ILIT trustees on the best way to serve their clients while steering clear of litigation

By Barry D. Flagg & Steven S. Zeiger

Last year, a ruling by the Indiana Court of Appeals, In Re Stuart Cochran Irrevocable Trust,¹ sent a shot-across-the-bow warning to trustees trying to navigate the changing irrevocable life insurance trust (ILIT) environment. In ruling for the trustee, the court provided valuable guidance as to how courts may apply the Uniform Prudent Investor Act (UPIA) to cases involving ILITs.

The court examined the prudence of an exchange of trust-owned life insurance (TOLI) holdings in accordance with the principles of the Indiana Prudent Investor Act. In so doing, it clarified the steps trustees should take to fulfill their fiduciary responsibilities and manage TOLI more effectively. If trustees follow a “prudent process” that incorporates information from “an outside, independent entity with no policy to sell or any other financial stake in the outcome,”² then courts shouldn't second-guess a trustee's decision regarding an ILIT's holding.

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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

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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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