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Fiduciary Pitfalls with Trust-Owned Life Insurance

One of the most overlooked consequences of the Uniform Prudent Investor Act (UPIA) is its effects on the administration of irrevocable life insurance trusts (ILITs). The trustee's duty to appropriately select, purchase, and monitor the insurance product that is often the ILIT's only asset has been brought to light by UPIA, and should be of concern to ILIT trustees.

A trustee has to obtain the needed data and determine the strengths and weaknesses of a given policy, then the trustee will be able to maximize benefits and minimize costs. Such management occurs when the ILIT trustee defines portfolio objectives, continually measures the policy's pricing and performance, identifies the policy's strengths and weaknesses, investigates available alternative products and makes necessary changes to the portfolio stemming from this information.

These steps are complex and may very well require the services of an expert, rather then rely on the representations of the agent selling the product. ILIT trustee's should consider seeking advice  with respect to a given policy's financial strength, claims paying ability, cost-competitiveness, price stability, cash value liquidity, and historical performance of invested assets. This assistance is provided by independent life insurance product research providers such as LifeLink Corp., Morningstar, and Veralytic.

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