Twenty-one years ago, Charles Hunter Montgomery set up a life insurance trust naming his daughter, Kimberly, as trustee. He was guided on the purchase by his longtime advisors at a major wirehouse firm in his hometown, who also agreed “to administer the investment account to maintain that life insurance policy .” (1) The policy, a $2M survivorship life policy on Charles and his wife, was overseen by the advisors with monies drawn from an investment account set up at the company specifically to fund the policy.

According to the lawsuit filed, the wirehouse managed the account, monitored the performance of the policy and paid timely “premiums to keep the Policy in force and effect,” and by 2018, more than $400,000 had flowed through the account to pay policy premiums.

Sometime in 2016, the carrier “began demanding increasing monthly premium to maintain the Policy in force and effect.” It appears that the increased monthly premiums occurred because of a cost of insurance (COI) increase we reported on in May of 2016, that affected approximately 18 different universal life and variable universal life products administered by Lincoln National, though the policies were originally issued by Aetna Life Insurance and Annuity Company (now Voya Retirement Insurance and Annuity Company).

Lincoln National did notify policy owners about the COI increase, and the lawsuit accuses the wirehouse of “failing to notify” the trustee of the increased costs and the demand by the carrier for “increased amounts of premium to maintain the Policy in force.” The COI increase would have the effect of depleting the policy cash value, and in July of 2018, the wirehouse sent the trustee a quarterly statement that noted the policy’s cash value had “dropped to zero,” though the lawsuit claims the defendant firm did not “notify Plaintiff of any issues with the performance of the Policy“ prior to that.

According to the suit, the wirehouse was notified the policy had lapsed as of June 25. The Plaintiff charges that “verbal notice of the alleged lapse received in early August 2018, was the first written or verbal notice received from any source that the policy was in arrears, or that the defendant had failed to timely and fully pay all accrued premiums claimed to be owed under the Policy.”

The trustee did manage to “ascertain” the back premium needed to put the policy back in force – “the amount of premium that Defendant Lincoln claimed to be in arrears” – and notified the carrier of her “willingness to pay all premium that Lincoln claimed to be owed under the Policy,” but the carrier declined.  After several more unsuccessful attempts to reinstate the policy, the trustee sent written correspondence to the wirehouse, outlining her position that the defendant’s “failures to carry out its duties with respect to the Account and the Policy had caused (or contributed to cause) this situation,” but the firm refused “to accept any responsibility for the loss and injury inflicted.”

The lawsuit claims the firm “made verbal and written representations” they were “properly administering” the investment account and “properly administering the Policy as the sole asset of that Account” but failed to comply with their “fiduciary duties.”

The case will work its way through the courts, and while we have no comment on current court cases, nor an opinion on this outcome, one thing we do know is this: no firm, whether investment house, law firm, CPA firm, trust or bank, wants to be on the wrong side of a policy lapse lawsuit.

Fortunately, there are alternatives to alleviate the liability. This is why we (ITM TwentyFirst) exist, with two options that any investment house, law firm, CPA firm, trust or bank should consider.

  • Our Managed Solution product was developed for those life insurance trustees who do not have the requisite knowledge or economy of scale to manage the asset efficiently. We are an outsource company. We provide all the services needed to administer the TOLI trust prudently and to maximize the value of the policy. We do it for thousands of trusts every day.
  • For those acting as trustee of a life insurance trust who want to remove the liability while keeping the client (or even remove the client in the case of some orphan trusts), our affiliated company, the Life Insurance Trust Company, is the answer. We can take over as trustee but provide you with all the information needed to maintain a solid relationship with the client, allowing you to decide how to manage the relationship going forward. It is the best of all worlds because we do not handle any other assets, leaving you to manage the more profitable assets in-house.

Life insurance is an asset best handled by experts. For this particular asset, ITM TwentyFirst is the expert.  

If you are interested in the Managed Solution, contact John Barkhurst at 319.553.6229, or  If the Life Insurance Trust Company is a better fit, contact Leon Wessels at 605.574.1703, or

  1. The wirehouse was Salomon Smith Barney, now Morgan Stanley and Company, LLC, but it could have been any wirehouse, any CPA firm or law firm, bank, family office or trust company taking on the responsibilities. The case is Brill vs. Morgan Stanley, Lincoln National Life and Voya Retirement Insurance and Annuity Company and was filed April 17, 2019, in US District Court, Southern District of Texas, Houston Division.