Life insurance policies, especially those owned by trusts (TOLI) are facing a crisis. 45% of life policies purchased between 1982 and 2003 were non-guaranteed universal life policies. Of those policies 23%-25% are projected to lapse prematurely. Premature lapse undermines estate plans, harms those relying on the proceeds from those policies, and potentially triggers suits against trustees who have not managed TOLI properly. Unless reviewed and restructured, many universal life policies will expire before their insureds.

With an estimated 90% of TOLI policies managed by non-professional individual’s, policies may deteriorate beyond remediation because no one noticed in time. The non-professional trustees are often a child of the settlor/insured who created the trust and plan acting with little or no guidance from the professionals otherwise involved in the family planning.

Rarely does the non-professional trustee retain advisers. Approximately 40% of in-force, non-guaranteed TOLI policies are carrier illustrated to lapse during the insured’s lifetime or within 5 years of estimated life expectancy.

What should practitioners do to advise clients concerning trust owned life insurance? What should trustees be concerned about and what steps should they take? What should attorneys know about these issues in order to better advise clients? And what are the steps trustees should take with their advisors for new TOLI acquisitions of life insurance?