As we end 2014 I wanted to post some observations from the past year.


The TOLI business is not growing, at least not significantly. We are still feeling the estate tax filing threshold jump to an indexed $5M. As the number of prospects drops, so does the number of new clients. Yes, there are reasons other than estate taxes to hold a policy in a trust, but the estate tax is the main driver. Can the estate tax change to favor the use of insurance trusts again? Perhaps, but probably not in the short term.

Even though we have not seen much growth in TOLI, we have also not seen a wholesale desertion of these trusts. No rush to exit, more of a slow trot for a few, but this is creating service challenges, as well as opportunities, for the trustee.

Service Challenges: Some grantors are concluding that their TOLI policy may no longer be needed, or at least the death benefit does not need to be as high as it is. Now I know there are people who will read this who can convincingly champion the virtues and economic efficiencies of life insurance, but can we all agree that there are few people who truly enjoy paying life insurance premiums? Many of them are your clients, so you will see an increasing level of policy service responsibilities for this group. What does the trustee do when the 85 year old grantor says they no longer want to pay premium? Or a client says he no longer needs $10M of coverage, $5M will do? This is still an asset that the trustee is required to maximize for the advantage of the beneficiary. But how? This type of analysis is in the ITM wheelhouse, but I have seen trustees frozen by these service requests when they lack in-house knowledge or outsourced abilities. And as I mentioned, this type of request will not be going away, it will be increasing.

Every trustee has “disinterested” grantors, those slow pay or even no pay, unresponsive clients that take up way too much time. Well, guess what? You will have more of them. These often apathetic grantors present a particular challenge. Dealing with them efficiently will become more important as we move forward.

New Opportunities: For those of you who like to look at the bright side of the road this new estate tax reality will give you the opportunity to engage your clients in real discussions about their financial situation.   And depending on your business model, that discussion could open up additional business opportunities in investments and/or insurance and perhaps provide you with an entrée to further discussions with the next generation. After all, isn’t one reason to hold these trusts to bridge the gap to that generation? A frank discussion with both generations on subjects such as long term care, for example, might just create that bridge.

TOLI Trusts on the Move: We have seen a number of TOLI portfolios move in 2014 and we are aware of additional ongoing discussions. And it makes sense. Some trustees simply do not have the requisite skills to manage this asset, or the stomach to handle the liability which can climb into the millions. And many of these trusts are “standalone,” with relationships generating only a TOLI administrative fee, no additional investment management or other charges. For every “seller” there must be a “buyer” and in this case there are still trustees in the marketplace who are actively seeking not only new business, but blocks of existing business. We have assisted in transactions in 2014 and I am sure we will continue to in 2015.

Life Insurance Sales: While the insurance market as a whole plodded along in 2014, either up a bit or down a bit quarter over quarter, Indexed UL (IUL) “experienced the strongest growth” according to the latest report from LIMRA, a life insurance marketing organization. We certainly saw an influx of this product at ITM (see What You (as Trustee) Need to Know About Equity Indexed Universal Life for further information on the pluses and minuses of Indexed UL.) The sales practices of agents selling this product led to Regulatory Scrutiny in 2014 that I outlined in New York State Regulators Eying Indexed Universal Life Sales Practices – What Every Trustee Should Learn From This.  As I mention in that blog, there is a concern by the NY regulators that “some insurance companies may be giving buyers overly optimistic projections of the potential gains in the policies.” These policies are often used as replacements for existing Variable Life policies, touted as a “safer, more conservative” alternative. Often, when we look back in the file we see that the existing Variable policy assumed a rate of return of 10-12% in a separate account portfolio and of course the policy failed to reach expectations. Frequently we are pitched a replacement IUL policy with a rate of return of 7-8% based on an Index, typically the S&P 500. Ironically, some industry observers (and at least one carrier) have said these lofty illustrated IUL expectations will be equally hard to attain.

Policy Replacements: One area of growing concern in 2014 has been the quality of the replacement policy options forwarded to us for review. I am not sure if it is the lackluster sales in the high end market, but we saw more “bad” replacements this year than in any past year. I have always told our clients that when it comes to selection there is no “best” policy. Policy selection is determined by particular facts and circumstances. What has been troubling to see is the seemingly limited ability of agents to act as true advisors. We will receive a “recommendation” based on an “analysis” that consists solely of dumping the cash value of the existing policy into a new policy. Sometimes a simple modification of the existing policy produces far superior results, though no new sale. I will admit I may be overly harsh here as an agent is generally not a fiduciary and simply providing an “appropriate” product is a low bar than can be hurdled easily. But a trustee is a fiduciary and that task requires a bit more responsibility – and work.

Not Your Father’s Life Insurance Company: In 2014, some “stodgy” life insurance carriers were spicing up their investment portfolios to squeeze out a little more return. In a blog published in August of this year (Life Insurers Adapting Investments to the Sustained Low Interest Rate Environment), I noted an article in Reuters published this year that noted that Allianz “invested in such projects as toll roads and stadiums as well as in renewable energy initiatives, such as wind parks and solar farms,” and they plan to “shift 10 percent … of the … firm’s assets into less-traditional investments in the next three to five years.” We have also seen hedge funds and private equity firms, entities rarely seen before, enter the insurance and annuity marketplace, a trend that is sure to persist over the next few years.

Life Settlements: After a number of years of decline, the life settlement market has shown some signs of revival in 2014. An aging population is providing the inventory for life settlement sales, and the prolonged low interest rate environment is bringing investors in looking for a higher return on what is perceived as a non-correlated asset. According to a study by Conning & Co., reported in this year, investors are seeking “alternative assets to generate comparatively higher investment returns.” Earlier this year on this blog I penned A Short Primer on Life Settlements for TOLI Trustees, which can provide you with some background on the subject. And it may be time to brush up on this strategy, as life settlements will become more important as you will be required to maximize value for the beneficiary on a policy the grantor may no longer want.


At ITM: 2014 has been a year of tremendous growth as our business model has benefited from the changes in the TOLI market. Our clients range from trustees wishing to aggressively build a TOLI business to those looking to offload their TOLI trust assets, as well as those who see TOLI as a component of a larger business model, but one that needs to be run efficiently, with liability mitigated. We continued our ITM Education Series in 2014, expanding subject matter to support our commitment to educating the trustee marketplace, not only in TOLI matters, but in other pertinent subjects, while providing free CE credits for both CFP and CTFA designations. New sessions for 2015 will be announced on our website soon. In closing, let me thank all of our clients for a wonderful year and wish everyone a warm holiday season. As we have in the past, we will be spending a week in Orlando in January at the Heckerling Institute on Estate Planning. Please do stop by our booth if you are attending.   Here is to a healthy and prosperous 2015.