If you are a trustee managing life insurance within a trust, you’re undoubtedly familiar with your responsibilities to ensure the trust’s objectives are met. However, even the most diligent trustees can find themselves exposed to risks if their oversight of Trust-Owned Life Insurance (TOLI) policies has not kept pace with evolving needs or market changes. The complexity of TOLI often means that hidden issues—ones that could impact the long-term success of the trust—may go unnoticed without a thorough review.
Common Oversights in TOLI Management: Life insurance is not a static asset. While it can be tempting to view policies as long-term instruments that don’t require regular attention, the reality is quite different. Over time, assumptions that once made sense may no longer apply, and policies that initially seemed well-designed may be underperforming. Some common concerns that might arise include:
- Underperformance of Policies: Many TOLI policies were set up based on assumptions that no longer hold true. Interest rates, dividend payouts, or market conditions may have changed, resulting in a lower-than-expected death benefit.
- Increased Premium Costs: Without regular monitoring, trustees may face unexpected increases in premium payments, which can strain the trust’s financial resources and potentially jeopardize the policy.
- Changes in Trust Needs: Over time, the trust’s beneficiaries may have new or different needs. A life insurance policy that was once appropriate may no longer align with these goals, leading to potential gaps in coverage.
Legal Risks of Inaction: The Uniform Prudent Investor Act (UPIA) places a clear duty on trustees to manage trust assets—including life insurance policies—prudently. Courts are increasingly holding trustees to higher standards of care, and failing to monitor TOLI could expose you to legal risks. This isn’t merely about neglect; even well-intentioned trustees may face liability if the policies within their trusts are not reviewed regularly and adjusted as necessary.
Lawsuits brought by beneficiaries often focus on:
- Negligence in maintaining policies: Trustees who miss premium payments or allow policies to lapse may face legal action.
- Poor policy design or outdated assumptions: If policies were designed on projections that have since changed, trustees may be held responsible for not taking corrective action.
- Failure to seek better alternatives: Courts may view a trustee’s failure to explore more cost-effective or better-performing policies as a breach of their fiduciary duty.
How We Can Help: We understand that managing life insurance within a trust is a complex and demanding responsibility, but it’s also a responsibility you don’t have to face alone. Our approach is focused on helping trustees identify potential issues they may not be aware of—issues that could significantly impact the trust’s assets and beneficiaries. We offer a comprehensive review of your current TOLI policies to uncover hidden risks, inefficiencies, or opportunities for improvement.
- Policy Performance Review: We assess whether your current policies are performing as expected and whether they still align with the trust’s goals.
- Cost-Saving Opportunities: We identify areas where newer policy structures or improved pricing may reduce premium costs or enhance death benefits.
- Risk Mitigation: Our review ensures that you are meeting the legal and fiduciary standards required of trustees, minimizing your exposure to potential lawsuits or claims from beneficiaries.
Moving Forward: We’re here to assist you in addressing any concerns you may have with your TOLI management. A detailed review of your policies can reveal the kind of hidden issues that, if left unattended, could lead to significant problems down the line. By identifying and addressing these issues now, you’ll not only protect the trust but also fulfill your fiduciary duty with confidence.
If you’re ready to take a closer look at your TOLI policies, we are prepared to provide the insights and expertise necessary to ensure they are optimized for the trust’s needs.
