|December 13, 2013|
Previously published on December 11, 2013
Being the trustee of an irrevocable life insurance may come with personal liability if the trustee is unaware of his or her duties and breaches such duties as a result. Unless liability is limited in the respective trust agreement and such restrictions are enforceable under state law, a trustee can be held personally liable for failing to act as a prudent investor would act or failing to follow the terms of the trust.
Each trustee must become familiar with the controlling trust agreement. Next, each trustee must fully understand his or her duties and responsibilities under the trust agreement and state law. Third, each trustee must keep advised of his or her fiduciary duties to the beneficiaries and his or her personal liability exposure for breaching such duties. Finally, each trustee is allowed to seek legal advice and pay for such costs from trust assets.
Each trustee must manage all trust assets proactively in accordance with the trust agreement and the prudent investor rule. Each trustee should periodically review the trust’s portfolio with an insurance advisor to insure that the life policy held remains a suitable investment for the respective trust and immediately take action if it is no longer suitable. There are many existing life insurance policies which no longer make economic sense. Without the proper review of policies owned by a trust a trustee could be caught in a whipsaw if the beneficiaries assert that the trustee has not been doing his or her job properly.