About Mark Pace

T. Mark Pace

When there is an immediate need for cash at the time of someone’s death, it has been my experience that life insurance, when properly acquired and managed, is one of the best tools ever invented for the creation and transfer of wealth. However, life insurance is rarely acquired properly and, because it is mistakenly assumed to be a "buy and hold" asset, it is never managed. The resulting financial disasters are far too frequent and completely avoidable.

If you would like to learn more about any Pig-in-a-Poke blog posts or discuss any other life insurance issues, contact T. Mark Pace at Mark@objectivereview.com

 

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Pace’s Pig-in-a-Poke

About Pace’s Pig-in-a-Poke

Pace’s Pig-in-a-Poke, provides an arena for sharing the four great passions in my life. My three foundational passions are:

  1. Invest in yourself first;
  2. The genius in all of us, and;
  3. We can all live a long healthy life.

These three support my life work and my fourth passion; LIPM™ (Life Insurance Property Management).

As the blog title suggests, my focus is on debunking all of the myths, misuse, and muddled thinking that has accumulated in the life insurance industry. And, from time to time, I will go outside of the specific world of life insurance and share my views on my other three passions.

I hope you find my blog worthy of your attention, informative, and occasionally inspirational. I welcome your comments, questions and suggestions.

Mark Pace

ILIT Grantors versus Beneficiaries: Whose side are you on?

The Poke:

In these litigious times, the one mistake that will get you successfully sued most often occurs after you agree to be a trustee of an Irrevocable Life Insurance Trust (ILIT).

It’s an easy trap to fall into for fiduciary advisors who work for the grantors of these trusts. For example, let’s say you are a CPA and your largest client wants to set up an ILIT for their spouse and children. Because of your close relationship, they ask you to be the trustee and – even though you know it’s not in your best interest – you agree rather than risk damaging one of your most profitable relationships.

Inevitably, as time passes, things change. In this case, your client, who is not only the grantor of the trust, but also the insured, gets divorced and starts a whole new family. Soon, his ex-spouse and the old group of kids are all but forgotten… as is their trust. And, to make things even worse, the grantor asks you to stop paying premiums and to find ways to loan money back to him on behalf of the children from first family (who are the trust’s beneficiaries). You relent, and then, suddenly, your client passes away and his first family finds out what you did and comes after you, guns a blazing, because the policy has failed or has been severely diminished in value.

The Poke Exposed:

Once you have been named the trustee, even if the grantor is your very best client, your primary responsibility is to the beneficiary.

Pace’s Poke Remedy:

The bulk of the successful lawsuits today are not the result of some technical issue such as proving excessive internal expenses within an insurance policy. That day will probably come, but just not yet. Most successful lawsuits result from a trustee’s failure to perform on behalf of the beneficiary and give reasonable and timely notice when there is information that has a potentially negative impact on the beneficiary.

The best thing you can do is to avoid the situation altogether by not agreeing to become the trustee. But, if you feel this is something that you must do, manage your client’s expectations by making it clear you will first do what your obligation as a trustee demands; which is defend the rights of the beneficiary. Let your client know that if this has the potential to be unacceptable, it would be best for them to select someone else as the trustee. Do what is right, not what is convenient.

If you find you have no other choice, you must be vigilant and watch out for all the simple things. For example, and at a minimum, regularly request an in-force illustration for review in order to make sure the policy or policies are continuing to perform as originally illustrated. If an illustration comes back and doesn’t look acceptable, don’t just stick it in a file somewhere and think you have done your job well enough. Send it to your client, the grantor, to let them know there is an issue AND, send it to the beneficiaries to honor your fiduciary responsibility.

The option I recommend you pursue is to outsource the management of the life insurance within these trusts to a firm that specializes in providing this type of monitoring and advice. You will then be able to provide copies of their regular reports to the beneficiaries (or their guardians) and the grantor, thereby leaving you with a record to prove you have done your best to meet or exceeded your fiduciary responsibilities.

 

About the author

Mark Pace
Mark Pace
When there is a need for immediate liquidity at the time of someone’s death, it has been my experience that life insurance, when it is properly acquired and managed, is one of the best tools ever created for the creation and transfer of wealth. However, in my 35 plus years of experience, life insurance is rarely properly acquired and never managed… thereby creating a monumental financial disaster for many individuals that should never happen.

If you would like to learn more about this Pig-in-a-Poke subject or discuss any other life insurance issues, contact T. Mark Pace at Mark@objectivereview.com

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