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Do not put content on the brand signature area ©2014 Voya Services Company. All rights reserved. CN1126-6186-1215 The demanding job of an ILIT Trustee.

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Presentation on theme: "Do not put content on the brand signature area ©2014 Voya Services Company. All rights reserved. CN1126-6186-1215 The demanding job of an ILIT Trustee."— Presentation transcript:

1 Do not put content on the brand signature area ©2014 Voya Services Company. All rights reserved. CN The demanding job of an ILIT Trustee

2 Do not put content on the brand signature area ©2014 Voya Services Company. All rights reserved. CN Disclosures  The Voya™ Life Companies and their agents and representatives do not give tax or legal advice. This information is general in nature and not comprehensive, the applicable laws change frequently and the strategies suggested may not be suitable for everyone. You should seek advice from your tax and legal advisors regarding your individual situation.  These materials are not intended to and cannot be used to avoid tax penalties and they were prepared to support the promotion or marketing of the matters addressed in this document. Each taxpayer should seek advice from an independent tax advisor.  Life insurance products are issued by ReliaStar Life Insurance Company (Minneapolis, MN), ReliaStar Life Insurance Company of New York (Woodbury, NY) and Security Life of Denver Insurance Company (Denver, CO). Within the state of New York, only ReliaStar Life Insurance Company of New York is admitted and it's products issued. All are members of the Voya™ family of companies. 2

3 Do not put content on the brand signature area ©2014 Voya Services Company. All rights reserved. CN Being a Trustee is combination of good news & bad news Good News  An honor and a statement of trust  Responsibility for managing trust assets must –Follow the terms of the trust, and –Comply with state law 3

4 Do not put content on the brand signature area ©2014 Voya Services Company. All rights reserved. CN Being a Trustee is combination of good news & bad news Bad News  A trustee is a “fiduciary”  Held to a high standard of performance  State law may create unexpected responsibilities 4

5 Do not put content on the brand signature area ©2014 Voya Services Company. All rights reserved. CN Being an ILIT Trustee can be demanding  Probably not consulted about the trust’s terms  Probably didn’t select what policies came into the trust  No control over new funds coming into the trust –Timing of contributions, or –Contribution amounts  Probably can’t change the terms of the trust 5

6 Do not put content on the brand signature area ©2014 Voya Services Company. All rights reserved. CN Being a trustee can also be financially dangerous! The Trustee should use sound business judgment; the Trustee can be personally liable for losses! 6

7 Do not put content on the brand signature area ©2014 Voya Services Company. All rights reserved. CN A Trustee’s personal assets can be at risk!  If the trust’s assets aren’t managed properly, the trustee can be held personally responsible  A trustee can be ordered to use his/her personal funds to replace lost trust funds 7

8 Do not put content on the brand signature area ©2014 Voya Services Company. All rights reserved. CN Three trends have made an ILIT Trustee’s job more difficult 1.The trust’s policies may not perform as expected 2.Insurers have developed new life insurance policies 3.Many states have increased trustee performance standards 8

9 Do not put content on the brand signature area ©2014 Voya Services Company. All rights reserved. CN  Life insurance illustrations are projections based on many assumptions  Some of the assumptions may turn out to be wrong –Interest rates –Mortality rates –Expenses  The performance of the policy changes over time  The longer the insured lives, the greater the potential for change The policy may not perform as expected 9

10 Do not put content on the brand signature area ©2014 Voya Services Company. All rights reserved. CN  The life insurance industry is very competitive; insurers regularly develop new products  New products can have new features and benefits that may provide additional value  Some new policies may have lower premiums  Medical advances and increasing life expectancies have resulted in more flexible underwriting New & improved policies are available 10

11 Do not put content on the brand signature area ©2014 Voya Services Company. All rights reserved. CN Many states have changed their laws and increased trustees’ duties  Performance standards have changed  More is required of trustees today  The Prudent Investor Rule has been widely adopted 11

12 Do not put content on the brand signature area ©2014 Voya Services Company. All rights reserved. CN Newly adopted standards can apply to many trusts They can even apply to trusts created before the new standards were adopted. 12

13 Do not put content on the brand signature area ©2014 Voya Services Company. All rights reserved. CN  The trust may establish its own performance standards  If the trust doesn’t set standards, then state law does –The new “Prudent Investor” Standard—Goal is to grow the principal –The old “Prudent Man” Standard—Goal was to preserve the principal What standards must a trustee satisfy? 13

14 Do not put content on the brand signature area ©2014 Voya Services Company. All rights reserved. CN  Since 1994 most states have changed to this standard*  No exemption for trusts established before the “Prudent Investor” standard was adopted * Consult with your tax and legal advisors to see if your state has adopted the new Prudent Investor standard. The “Prudent Investor” Standard 14

15 Do not put content on the brand signature area ©2014 Voya Services Company. All rights reserved. CN  Applies modern investment principles to trust management: –Trustees must use reasonable strategies to grow the trust assets –Trust assets should be managed together as a single portfolio –Absent special circumstances, trust assets should be diversified –Trustees can hire professionals to help in making decisions The “Prudent Investor” Standard 15

16 Do not put content on the brand signature area ©2014 Voya Services Company. All rights reserved. CN  The trustee should implement good procedures: –Adopt a formal investment strategy to grow the trust –Diversify the trust’s assets –Regularly monitor asset performance –Make changes as necessary The “Prudent Investor” Standard 16

17 Do not put content on the brand signature area ©2014 Voya Services Company. All rights reserved. CN  Administering an ILIT can be difficult: –Life insurance policies are complex financial instruments –The policy may not perform as originally expected –Funds to pay the premiums may not come into the trust –Cash value withdrawals or loans may limit the policy’s performance ILIT Trustees may need assistance 17

18 Do not put content on the brand signature area ©2014 Voya Services Company. All rights reserved. CN  Situation #1 – A Policy In Trouble –ILIT owns a $1,000,000 policy that has minimal cash values –The grantor will not provide any more funds to pay premiums –Without additional funds, the policy is expected to lapse in 5 years –The insured is healthy and has a life expectancy of 10 years –If the policy lapses, the assets in the trust will be minimal  What should the trustee do? An ILIT Trustee may encounter these situations 18

19 Do not put content on the brand signature area ©2014 Voya Services Company. All rights reserved. CN  Situation #2 – A Policy With Limited Death Benefits –The trust owns a policy with a $1,000,000 death benefit; its performance is in line with the original illustration –A new policy is available that will pay a death benefit of $1,500,000 (a 50% increase) without an increase in premiums –The new policy is from a highly rated life insurance company  What should the trustee do? An ILIT Trustee may encounter these situations 19

20 Do not put content on the brand signature area ©2014 Voya Services Company. All rights reserved. CN  Situation #3 – A Policy From a Marginal Insurer –The trust owns a $1,000,000 policy issued by an insurance company that currently has lower ratings from industry rating agencies –This policy is performing as originally illustrated –A new $1,000,000 policy can be purchased from an insurance company that has higher ratings  What should the trustee do? An ILIT Trustee may encounter these situations 20

21 Do not put content on the brand signature area ©2014 Voya Services Company. All rights reserved. CN  A trustee may be able to reduce his/her personal risk: –Know exactly what the trust requires (make a checklist) –Create a written Investment Policy Statement (IPS) to manage trust assets –Monitor the performance of trust’s policies regularly –Document all actions taken –Seek detailed information about the life insurance policies How can ILIT Trustees protect themselves? 21

22 Do not put content on the brand signature area ©2014 Voya Services Company. All rights reserved. CN  Have you adopted a written investment policy statement?  Have you been regularly monitoring the trust’s policies?  Do you have the knowledge and experience to evaluate different life insurance policies? Three key questions 22

23 Do not put content on the brand signature area ©2014 Voya Services Company. All rights reserved. CN A trustee who answers “NO” to any of these questions, might benefit from consulting with someone who has experience in evaluating life insurance policies. 23

24 Do not put content on the brand signature area ©2014 Voya Services Company. All rights reserved. CN  Review the trust’s life insurance policies  Evaluate the current policies to see how they’ve performed  Survey the marketplace to see if better life insurance policies are available  Summarize available options & make recommendations An experienced financial professional may help: 24

25 Do not put content on the brand signature area ©2014 Voya Services Company. All rights reserved. CN A Financial Professional experienced with life insurance can assist the trustee 25

26 Do not put content on the brand signature area ©2014 Voya Services Company. All rights reserved. CN  Some financial professionals have experience in providing life insurance policies to trusts  He/she may help implement a formal investment policy –Assist in drafting an Investment Policy Statement –Help draft a checklist to review the trust’s life insurance policies and help monitor them in the future –Compare the ILIT’s policies to new policies currently available A Financial Professional may help limit a Trustee’s risk of personal liability 26

27 Do not put content on the brand signature area ©2014 Voya Services Company. All rights reserved. CN The Stakes Are High! Beneficiaries Want The Trust To Grow; Trustees Need To Avoid Personal Liability 27

28 Do not put content on the brand signature area ©2014 Voya Services Company. All rights reserved. CN Contact Your Financial Professional Today Find out how he/she can help maximize benefits and reduce the trustee’s potential liability 28

29 Do not put content on the brand signature area ©2014 Voya Services Company. All rights reserved. CN Thank you! Questions? 29


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