Life Insurance Management: An Underappreciated Part of Estate Planning

By Abraham Avotina

When people begin the estate planning process, they often assume that life insurance is low-maintenance. They purchase the coverage, pay the premiums, and do little else to manage the policies.

One tool that people can use to give life insurance funds to their heirs is called an irrevocable life insurance trust (ILIT). An ILIT allows you to purchase life insurance and transfer the funds to heirs outside of your estate. Even though an ILIT may be outside, the trustee still has five primary fiduciary responsibilities that involve monitoring the coverage in the beneficiaries' best interest.

1. Confirm who owns and who benefits from each policy.

While these terms may seem obvious, trustees have to do due diligence when conducting their estate planning duties. If the insured person relinquishes incidents of ownership, transfers the policy, or inadvertently triggers transfer for value, then the insured person may no longer own the policy when he or she dies. Likewise, if the insured person gets a divorce, then the beneficiary may also change. Trustees should make sure that provisions are made if minor children are the policy beneficiaries. They should also investigate a life insurance policy as part of a Crummey trust, which is a tool for gifting assets to minors.

2. Make sure the life insurance company remains financially sound.

Estate planning trustees should periodically check the following financial indicators for the insurance company including researching whether the company has experienced any recent downgrades:

* AM Best rating
* Fitch rating
* Moody's rating
* Standard & Poor's rating
* Comdex score (should be above the 90th percentile)

3. Periodically review the terms of the policy.

When performing estate planning duties, trustees should make sure that the coverage and premiums of the policy are still adequate. Young beneficiaries, for instance, should have enough money to replace their incomes if the insured person dies. Also, the trustee should make sure that the policy is competitively priced. If a better value can be obtained elsewhere, then the insured person should obtain new coverage.

4. Look for ways to reduce the premiums.

One of the best ways to lower premiums, in addition to shopping for a better value, is to ask for adjustments if the insured person makes major health improvements. These improvements may include:

* Quitting smoking or use of tobacco products
* Significant weight loss
* Lower cholesterol
* Lower blood pressure

Also, if the insured person has a family or personal history of cancer or other disease, the trustee should investigate a product called "health-impaired" life insurance as part of estate planning.

5. Make sure that the policy is still useful within the portfolio.

When modifying or replacing a policy causes potential tax problems, or when a client is over the age of 70, then life insurance premiums may be better invested elsewhere. In this case, the trustee may recover some of the face value by investigating a life settlement.

If you're in need of Grand Rapids estate planning, turn to the devoted professionals at The Law Offices of David L. Carrier, P.C. Make sure that the details of your estate are taken care of correctly, and visit http://www.davidcarrierlaw.com/estate-planning-for-generations/.

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