Changing the Irrevocable Trust

Family photo

Our two prior blogposts explored the need for regular and ongoing trust-owned policy reviews and examined methods of valuing underperforming, at-risk policies. This third post explores a potential option when a policy review uncovers a poorly drafted or obsolete irrevocable trust.

“Predictions are hard,” said former NY Yankee Hall of Famer Yogi Berra. “Especially about the future.”

Yet somehow clients, their financial advisors and estate attorneys are supposed to gaze into the future and know how newborns will turn out, what legislative, tax and carrier changes will take place, and whether a couple will stay together or divorce, remarry and potentially start second or third families. Based on this perfect seer-like wisdom, all-knowing advisors must create Irrevocable Life Insurance Trusts (ILITs) that can never be altered in any way, shape or form. Challenging? Certainly. But it’s been the status quo for years. Until now.

Twenty-eight states have either passed or are considering legislation that would allow clients to revoke (“decant”) an irrevocable trust. Even California recently conceded the wisdom of former Carmel resident Doris Day’s 1956 hit song “Que Sera Sera”1 and passed the Uniform Trust Decanting Act in 2018.

California’s new law allows trustees to modify the terms of a trust (with some limitations) without court approval or the consent of beneficiaries’ non-judicial modification). In addition, trustees can always go to court to modify an existing agreement (non-judicial modification).

Policy Reviews and the Irrevocable Trust

Trustees have a fiduciary responsibility to manage assets for the benefit of trust beneficiaries. Yet life insurance is often viewed as a passive asset by trustees. ILITs, in fact, need constant performance monitoring to ensure sufficiency of current premium payments and whether any withdrawals or loans outstanding have affected the policy over time. Failure to do so could subject trustees to an unintended breach of fiduciary duties and legal liability.

What’s that Life Insurance Policy Worth?

Family photo

Life is change. That’s why as life goals change, life insurance needs change as well.

Over time, the original need for coverage — like having young children or providing for income replacement — may no longer matter to clients after retirement. They may own policies they no longer need or can afford, especially if one of the policyholders is in poor health. What’s more, sustained low interest rates and the volatility of equity markets may have drastically affected older policies so that original premium funding levels cannot sustain coverage.

The best way to keep track of these changing client situations is through a regular policy audit or policy review, as discussed in our prior blogpost.

During the past several years, our Policy Analysis & Comparative Evaluation (PACE) report has uncovered many underperforming policies. However, before considering a reduction in face amount, surrendering coverage or transferring ownership, a serious effort should be made to determine the contract’s true value.

At first glance, the value would appear to be the policy’s surrender value. Yet that may be the worst way to determine valuation. Nor does it provide a method to assess a term life policy. In fact, our research indicates that most valuation methods are inadequate and outdated, use inconsistent data, and fail to consider the health of the insured(s).

So how should a life insurance policy be valued?

Robert W. Finnegan, J.D., CLU®, AEP®, Published in June 2019 Estate Planning Magazine

Robert Finnegan Published in June 2019 Estate Planning Magazine

We are pleased to announce that the following article by Robert W. Finnegan, J.D., CLU®, AEP®, was recently published in the June 2019 Estate Planning magazine.

Generational Split-Dollar Plans
and Sections 2036 and 2038

An analysis of recent court decisions provides insights for structuring generational split-dollar arrangements to withstand IRS challenges.

The Internal Revenue Service continues to litigate generational split dollar plans (GSD plan) arguing that Code secs. 2036(a)(2) and 2038(a)(1) require inclusion of the full face value of G1’s split dollar receivable. This article provides compelling arguments that a compliant GSD plan is not subject to those Code sections and that the plans should be entitled to a reasonable discount (similar to family limited partnerships). It also recommends that, until the law is more settled in this area, that plans be promoted assuming no discount.

View Article

Bob Finnegan is the Senior Vice President, Advanced Planning Attorney for Highland Capital Brokerage and a member of the Trusts & Estates magazine Insurance Committee. At Highland, Bob specializes in advanced planning for high net worth and ultra-high net worth clients. Bob can be reached at 518.424.8928 or

Why Trust-Owned Life Insurance Policies Need a Periodic Health Checkup

Floppy Disk with Life InsuranceIf you’ve had a physical exam or dental checkup recently, you know how important periodic evaluations can be in preventing small problems from turning into bigger ones.

Health and life changes, such as marriage, divorce, retirement, arrival of a new baby, or the purchase and sale of a home, can affect our financial health, too. That’s why it’s important to periodically check and update customer accounts and other financial documents.

This is especially true when it comes to life insurance coverage. Over time policies can become outdated and rife with simple errors — such as having an incorrect permanent address or phone number for the policyholder. Or referencing one or more deceased beneficiaries. In some cases, medical advances and the entry of new competitors could enable policyholders to obtain better coverage at a lower cost. On the other hand, some policies may be close to lapsing because of outstanding policy loans or failure to maintain premium payments.

The Top 5 Questions to Ask About a Living Benefit Rider

Annuities have always been the only financial instruments that can provide an income that cannot be outlived. Historically, this meant annuitizing the contract — exchanging the lump sum account value for a guaranteed series of payments for a specified period or life.  The thought of forfeiting principal for income, however, was unpleasant to most consumers and therefore annuitization was rarely used.

Living benefits — often called income riders — first appeared on variable annuity contracts to provide a “safety net” in the event the underlying accounts did not perform as hoped. Today, living benefits are available on all types of annuities.

Robert W. Finnegan Published in April 2019 Trusts & Estates

We are pleased to announce that the following article by Robert W. Finnegan, J.D., CLU®, AEP®, was recently published in the April Trusts & Estates.

 IRC Section 6166 Revisited
A way to avoid a forced or fire sale of a closely held business to pay taxes

Code §6166 allows a decedent who was a US citizen or resident at the time of death to defer estate taxes attributable to a closely held business.  This article takes an objective look at the requirements, limitations and pros and cons of Code §6166 as well as how life insurance can complement its use.

View Article

Trusts & Estates is the pre-eminent, peer review journal and website for wealth management professionals serving the needs of high-net-worth clients, family business owners, family offices, charitably inclined donors and non-profit corporations. Click here to learn more about Trusts & Estates.

Bob Finnegan is the Senior Vice President, Advanced Planning Attorney for Highland Capital Brokerage and a member of the Trusts & Estates magazine Insurance Committee. At Highland, Bob specializes in advanced planning for high net worth and ultra-high net worth clients. Bob can be reached at 518.424.8928 or

Backstage at Highland: Nancy Simm, CLTC, LTCP, CSA, Director, LTC & Longevity Planning

Highland Capital Brokerage provides superior client service through a vast network of business and underwriting experts. Each of our team members has longstanding experience and is committed to helping you serve clients. BACKSTAGE, our new blogpost series, takes you behind the scenes so you can learn more about your dedicated professionals.

Nancy Simm, CLTC, LTCP, CSA
Director, LTC & Longevity Planning
Highland Capital Brokerage

Benjamin Franklin once remarked the only certainties in life were death and taxes. But America’s most beloved patriot could never have foreseen a third possibility — caring for a rapidly aging population — because average life expectancy in 1776 was only 35 years of age.

Average life expectancy now hovers around age 79 in the U.S. and age 84 in Japan, and it’s rising fast worldwide. By 2030, one-fifth of the U.S. population will be 65-plus. In South Korea, life expectancy is expected to reach 90 years of age.

What does all this mean for clients and their advisors? Nancy Simm, our Director of Long-Term Care and Longevity Planning, has spent most of her adult life working in this field and thinking through the ramifications. The upshot? When it comes to long-term-care coverage, everyone should have a plan for it.

Tortoise vs. Hare: 3 Reasons Why Fixed Income Annuities Win the Investment Race

Tortoise and Hare Race

People love get-rich-quick schemes, from the Tulip craze of 1637 and Bernie Madoff, to lottery fever and Bitcoin. There’s only one problem: substantial research shows that slow and steady wins the race.

For example, in a recent paper by Barclays and co-authored by Dr. Robert Shiller entitled “Investment Characteristics of FIAs,” the authors uncovered three remarkable trends regarding long-term investing.

Two Lifelong Buddies…But Only One Had a Business Retirement Secret

Bill Jordon and Sam Franklin have been lifelong buddies since kindergarten. Legend has it the friendship began when Bill threw a building block at Sam’s head and Sam retaliated by pouring Elmer’s Glue into Sam’s shoes during naptime. Since then they’ve been close friends, regularly planning get-togethers with their wives and children. Yet at the same time, whether on the golf course or in business, they remained lifelong, but friendly competitors.

Over the past few months, Bill and Sam have been talking a lot about retirement. Bill’s business has grown to employ more than 30 people and has allowed Bill to take a decent salary for his entire career. One reason why Bill’s business has been so successful is that, since his business was founded, Bill has reinvested all the profits he could back into the business.

Executive Disability: Bridging the Group Coverage Gap

Are you a business owner or highly compensated employee?  If so, your group disability coverage may be riskier than it looks and poorly suited to your needs.

Group Long Term Disability (GLTD) is a valuable employee benefit. It generally kicks in after 90 days to 180 days after a short-term disability and covers 60% of income. This would seem to be an adequate amount of protection, but it’s not.

One reason: these policies typically feature a monthly benefit cap in the $5,000 to $10,000 range. This limit in effect punishes successful people, because coverage on a percentage basis decreases as earnings increase.


Page 3 of 47First...234...Last