ILIT vs Prudent Investor Act

August 4, 2010

If you’ve been involved in advising on ILITs (Irrevocable Life Insurance Trusts) you know (or should know) that in spite of its “Insurance” moniker, it is basically an irrevocable trust and, as such, would be subject to the Prudent Investor Act established in most states. Under that standard an advisor would be responsible for, among other issues, to determine whether the life insurance is or remains a proper investment and to investigate the financial strength of the life insurance company. Well, it seems that the insurance industry has managed to develop protection for advisors from these responsibilities – at least in some states. Steve Leimberg, in his always excellent estate planning newsletter writes that “Several states have acted to relieve the trustee of liability for handling life insurance as an investment, either in general or in the case of ILITs. Effective July 1, 2010, Florida has joined the liability reduction club with new section 736.0902.” If this is an area of your practice it’s worth investigating further.

View Newsletter

%d bloggers like this: