South Florida Estate Planning: Florida Carves Away Trustee Liability as to Life Insurance
Effective July 1, 2010, Florida Statute §736.0902 now limits both a trustee's duties and liability in connection with life insurance held within a trust. This is great news for current and future trustees of trusts established in Florida which hold or will hold life insurance policies; however, if you are currently serving as trustee, you must take certain measures to afford yourself such liability protection.
Irrevocable trusts which own life insurance are used frequently as one component of a person's overall estate plan. These trusts are prevalent due to the tax advantage they create; generally, if an insured owns the policy in his name, the death benefit will be included in his or her estate for estate tax purposes, whereas, in a properly structured irrevocable trust, the beneficiaries of the policy can receive the proceeds free of any estate taxes. Additionally, such trusts can be structured to keep the proceeds safe from the beneficiaries' creditors and free from the beneficiaries' estate taxes at their death.
The new statute reduces the certain liabilities and duties of the trustee with respect to any contract for life insurance on the life of a qualified person. A "qualified person" is the insured, or the spouse of that person, who has provided the trustee with the funds used to acquire the policy or pay premiums thereon. In the typical irrevocable trust arrangement, the insured or person to be insured (or their spouse) will transfer funds to the trustee and thereafter, the trustee transfers the funds, or a portion of the funds, to the insurance company to pay the premiums on the policy, so generally, this requirement is satisfied.
As long as the insured is a qualified person, the statute provides that a trustee will not be liable to the beneficiaries of the trust or any other person for any loss sustained with respect to the contract for life insurance and, unless otherwise provided in the trust instrument, the trustee now has no duty to determine whether the life insurance is or was procured with a proper insurable interest.
Additionally, as long as either a) the trust instrument, by reference to §736.0902, makes the statute applicable to contracts for life insurance or b) the trustee gives notice to the qualified beneficiaries that this section applies, then the trustee will have no duty to determine whether any contract of life insurance is, or remains, a proper investment or whether to exercise any policy option available under the life insurance contract. Nor will the trustee have a duty to investigate the financial strength of the life insurance company, diversify the assets of the trust with respect to the contract for life insurance or investigate the health or financial condition of any insureds.
If you are serving as a trustee on a trust which owns a life insurance policy, it would be prudent for you to provide proper notice to the qualified beneficiaries of the trust that this section applies; by doing so, unless you receive an objection within 30 days from a beneficiary, you will be relieved of any duty to determine if the policy is a proper investment or if options under the life insurance policy's contract should be exercised. The trustee will not have to worry about investigating the financial strength of the insurance company, diversifying assets with respect to the life insurance or investigating the health or financial condition of the insured person. This can help you focus on your role of accepting funds from the insured, sending Crummey letters to the beneficiaries (if applicable) and paying the insurance premiums on time to avoid a lapse of the policy.
Of course, before making any final decisions, please consult with a qualified South Florida Trust Attorney.
Irrevocable trusts which own life insurance are used frequently as one component of a person's overall estate plan. These trusts are prevalent due to the tax advantage they create; generally, if an insured owns the policy in his name, the death benefit will be included in his or her estate for estate tax purposes, whereas, in a properly structured irrevocable trust, the beneficiaries of the policy can receive the proceeds free of any estate taxes. Additionally, such trusts can be structured to keep the proceeds safe from the beneficiaries' creditors and free from the beneficiaries' estate taxes at their death.
The new statute reduces the certain liabilities and duties of the trustee with respect to any contract for life insurance on the life of a qualified person. A "qualified person" is the insured, or the spouse of that person, who has provided the trustee with the funds used to acquire the policy or pay premiums thereon. In the typical irrevocable trust arrangement, the insured or person to be insured (or their spouse) will transfer funds to the trustee and thereafter, the trustee transfers the funds, or a portion of the funds, to the insurance company to pay the premiums on the policy, so generally, this requirement is satisfied.
As long as the insured is a qualified person, the statute provides that a trustee will not be liable to the beneficiaries of the trust or any other person for any loss sustained with respect to the contract for life insurance and, unless otherwise provided in the trust instrument, the trustee now has no duty to determine whether the life insurance is or was procured with a proper insurable interest.
Additionally, as long as either a) the trust instrument, by reference to §736.0902, makes the statute applicable to contracts for life insurance or b) the trustee gives notice to the qualified beneficiaries that this section applies, then the trustee will have no duty to determine whether any contract of life insurance is, or remains, a proper investment or whether to exercise any policy option available under the life insurance contract. Nor will the trustee have a duty to investigate the financial strength of the life insurance company, diversify the assets of the trust with respect to the contract for life insurance or investigate the health or financial condition of any insureds.
If you are serving as a trustee on a trust which owns a life insurance policy, it would be prudent for you to provide proper notice to the qualified beneficiaries of the trust that this section applies; by doing so, unless you receive an objection within 30 days from a beneficiary, you will be relieved of any duty to determine if the policy is a proper investment or if options under the life insurance policy's contract should be exercised. The trustee will not have to worry about investigating the financial strength of the insurance company, diversifying assets with respect to the life insurance or investigating the health or financial condition of the insured person. This can help you focus on your role of accepting funds from the insured, sending Crummey letters to the beneficiaries (if applicable) and paying the insurance premiums on time to avoid a lapse of the policy.
Of course, before making any final decisions, please consult with a qualified South Florida Trust Attorney.
Labels: Florida Asset Protection, Florida Estate Planning, Florida Tax Planning, Florida Trust Attorney, Florida Wealth Preservation
posted by Noah Davis at
6:43 PM
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