Recently, we posted a blog that laid out the 5-step process we undertake to move a block of policies to the Life Insurance Trust Company (LITC) as successor trustee. There are several reasons this may occur. Some trustees simply grow tired of the risk that ILITs represent, especially if they can remove the risk while still retaining the client in other, more profitable business lines. Some trustees do not want to offload all their ILITs, just those “orphan” ILITs that represent the most risk with minimal business upside.
Today we are highlighting the procedure behind a recent transfer of ILITs from a large and well-respected Midwest trust company looking to offload their orphan policies. As we mentioned in a blog we posted last month, LITC specializes in working with trustees who wish to relinquish only a portion of their portfolio. Because of the affiliated relationship LITC has with ITM TwentyFirst, the largest manager of life insurance trusts in the country, life insurance trusts, even orphan trusts, can be managed efficiently and economically at LITC.
As always, the first step in the process was the implementation of a non-disclosure agreement (NDA) providing LITC with the authority to review trust materials. The orphan trusts coming over contained 17 life insurance policies and since this trust company utilized the services of LITC’s affiliated company for policy reviews, obtaining the information needed to review the trust and the policies was simplified.
An agreement was drawn up and signed outlining the transfer and the trust documents were reviewed by Tony McKillip, Senior Trust Officer at LITC. Each trust document took about 1 hour to review, with all documents reviewed within a week’s time.
The 17 policies were evaluated by the LITC policy review team at ITM TwentyFirst and a few were placed into remediation for follow up analysis and documentation.
LITC legal counsel filed a petition in South Dakota to alert the court of the change in trusteeship to LITC and request approval of the governing documents. This trust company had also asked and obtained approval from the court of the accounting in their trusts.
LITC worked with the transferring trust company to develop initial notification to grantors and beneficiaries to the change about to occur. The notification process went smoothly with no negative responses to any communication. Incoming inquiries to LITC were limited to questions about the fee structure which was not changing. Some conscientious clients asked whether there was anything they needed to do to help the process along.
Approval of the court for the first petition came in shortly after the initial notification of clients occurred and the second and final petition to approve the acquisition agreement and transfer trusteeship was filed. Clients then received a second correspondence including a copy of the petition and an inventory of their trust.
The second petition was quickly approved by the court and LITC became trustee.
The whole process from start (signatures on NDA) to finish (approval by courts and onboarding of policies and trusts) took 9 weeks.
While each case will have its own characteristics, LITC found the process easily managed, efficient and most important, not taxing on the trust company transferring the assets.
For a redacted copy of the second court petition or to inquire about the process, please contact Leon Wessels at 605.574.1703 or firstname.lastname@example.org.