Life insurance settlements many times are not even considered by policyholders who view their policies as liabilities as opposed to a valuable asset. A typical senior doesn’t understand life settlements and that there is a real opportunity to maximize the value of an asset that many let lapse for no value after a lifetime of premium payments.
Trustees of trust owned life insurance are held to a higher standard when it comes to trust owned life insurance and life settlements.
Currently, with significant changes to the estate tax law, extended life expectancy of insureds or changes in family circumstances may render the payment of a death benefit in the future less important than present financial needs of the trust’s grantor and/or it’s beneficiary. These factors can result in a trustee being tasked with exploring alternatives to the trust ownership of life insurance policies.
It is in that context that a trustee’s duties to maximize the value of trust assets including life insurance arises and confronts the trustee. As a result, the question of “if” or “when” to sell a policy through a life settlement must be carefully considered by trustees.
Probably the one key factor in the analysis is the availability of funds to continue to pay policy premiums. If an insured is a senior, with health issues and the insured’s family (beneficiaries) are depending on a significant death benefit then maybe a life settlement is not the best option.
However, in a situation where a trust was established and life insurance was purchased as part of an overall estate tax planning strategy and the grantor has expressed the intention to stop contributing to payment of premiums because estate tax is no longer an issue, well in that case a life settlement may be a better alternative than letting the policy lapse or surrendering the policy.
If you are a trustee faced with decisions to be made with respect to trust owned life insurance call us for a no cost-no obligation analysis to assist you!
Dan A. Penning
Life Settlements Specialist
Professional Life Settlements Plus
