Iowa Trust Association Quarterly News

ITA President's Message

Some of you may be like me in trying to find education options for our operations staff; options that do not require much time out of the office or a large expense.  Well, do we have a class for you!

The ITA has teamed up with Cannon Financial to provide our members with an economical seminar for your operations staff.  You don’t even have to travel outside of the state!

This seminar will be October 23-24 at the West Des Moines Marriott covering the following topics from an operational standpoint:

Watch for more information on the registration for this seminar.  Your operations staff will not find a better option elsewhere!

Jonathan Holthe, CFP
CBI Bank & Trust and President of the Iowa Trust Association


Five Mistakes Trust Owned Life Insurance (TOLI) Trustees Make

Michael Brohawn, CFP, CLU, ITM  TwentyFirst
L
ife insurance is a confusing asset, and the tax and estate planning requirements around trust administration are cumbersome. By avoiding these five mistakes, your job will be easier, your liability decreased.

#1: Failing to Price Services Correctly: Trustees often price insurance trusts as an accommodation. In an ITM TwentyFirst survey we found one third of trustees charged under $750 per trust, with 15% charging $250-$500. Competent administrative staff, legal counsel, and life insurance specialists are required to manage this asset, and their costs exceed these amounts.  Most trustees charged $1,000-$1,500 – more in-line with costs – and currently, we are seeing new pricing models starting at $2,000. If you are in the business, charge what you need to do a good job, or get out. There is too much liability attached to this asset.

#2: Failing to Adequately Document a Prudent Process: Per the UPIA, a prudent decision is viewed “in light of the facts and circumstances . . . at the time of a trustee’s decision . . . not by hindsight.” This should bring comfort to the trustee who can demonstrate a prudent decision, but too often, documentation is insufficient. Usually, there is no uniform process in place. Many things outside of your control affect an outcome, but if you need to prove you upheld your fiduciary duty, you better be prepared to show the prudent practices that you employed. 

#3: Failing to Analyze Policy Options When Trust Goals Change: While TOLI trusts are irrevocable, goals change - death benefit needs drop, grantors stop funding the trust. A trustee must have the necessary skills to maximize the asset even when changes occur. The analysis is not easy, but it must be done. Unfortunately, some trustees do not know where to start.  I have seen trustees surrender a policy with no analysis – a recipe for disaster (and a lawsuit).

#4: Failing to Adequately Communicate with Grantors and Beneficiaries: Communication reduces negative outcomes and liability. Maintain an active dialogue with grantors and, when necessary, beneficiaries. Recurring communication concerning the policy is a must. If needed, face-to-face or conference call reviews should be encouraged. Reaching out to a grantor reinforces the validity and purpose of the trust. Beneficiaries need to be notified any time there is a change to trust benefits. Court cases and settlements can be avoided if this simple rule is followed.

#5: Failing to Adequately Understand Policy Replacements: There are good reasons for a policy replacement, but often trustees do not investigate whether they make sense. We were contacted by a trustee (not a client then, but a client now) who accepted a bad policy replacement two years prior, and since there was nothing we could do, wrote a large check to make the trust whole.  Recently, we stopped a replacement that would have left a trust $900,00 poorer – a lawsuit waiting to happen.

Financial settlements for mismanaging life insurance trusts are rising as market stresses and policy complexities increase.  By avoiding these mistakes, you lower your chances to be a party to one. 


Legislative Tool Helps you Connect with Legislators

  The Iowa Bankers Association's Legislative Action Center allows bankers to easily contact legislators electronically. Letters on key pending legislation and regulations are posted on the site and can be easily edited and/or personalized for bankers to send to their respective elected officials and regulators at the state and federal level. The Legislative Action Center is available online at www.iowabankers.com.


Contribute to the Iowa Trust Association

As a reminder, the Iowa Trust Association (ITA) welcomes contributors to their quarterly newsletter. If you would like to comment on recent activities in the industry or let us know about an upcoming event that would be of interest to our readers, please feel free to contact Darcy Burnett, at (800) 800-2353 or dburnett@iowabankers.com. Thank you for your interest in our publication and we look forward to hearing from you!


ITA Newsletter Subscription

If this message was forwarded to you and you would like to receive the ITA Newsletter, e-mail Darcy Burnett to subscribe.


Published by the Iowa Trust Association
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