Many affluent individuals already know when a life insurance policy is owned by a properly prepared life insurance trust, death benefits payable to the trust are generally not includable in the deceased’s taxable estate. Unfortunately, little attention is often given to the policy funding the trust after it is initially put in force. The grantor/trustor should take charge of their trust and ask the trustee questions to assure their insurance policy is always in good standing. Consider the following:
Will the Policy in Your ILIT (Irrevocable Life Insurance Trust) Still be in Force When it is Needed?
Many policies, such as universal life and variable universal life policies, are originally issued with an illustrated premium that shows the policy staying in force for life. However, this initial premium schedule may not guarantee the death benefit for life, and reviews and new illustrations must be completed regularly to assure sufficient premiums are being paid.
Will the Policy Lapse Due to Inadequate Funding Precipitated by Unreasonable Interest Rate Assumptions?
Again, some policies are written with “assumed” premiums necessary to keep a policy in force for life, rather than on a guaranteed schedule. See #1.
What are the Necessary Components in a Compliant Life Insurance Policy Evaluation?
On at least an annual basis, the trustee should review the policy, taking the following into consideration:
∙ The performance of the policy relative to the original illustration or expectations.
∙ If there is a policy in the market that may better meet the trust’s wishes and stipulations in the document.
∙ Has the credit rating of the insurance carrier been reduced since issue?
∙ Is there a lower cost policy available with a guaranteed death benefit?
∙ Has the insured’s health changed? If for the better, lower premiums may be available.
∙ In VUL’s, if the allocation of sub-accounts aligns with the trust’s investment policy statement.
∙ The trustee may have other duties pertaining to withdrawal rights (Crummey power letters) and other annual responsibilities unrelated to the life insurance policy.
In short, a trustor can and should stay involved with his/her trust reviewing the questions above with his/her trustee frequently. The irrevocable life insurance trust does not run itself once it’s drafted; it requires periodic maintenance and review.*While we make every effort to keep our site updated, please be aware that "timely" information on this page, such as quote estimates, or pertinent details about companies, may only be accurate as of its last edit day. Huntley Wealth & Insurance Services and its representatives do not give legal or tax advice. Please consult your own legal or tax adviser.