Millions of businesses worldwide have drafted or purchased business continuity plans, some have even practiced or simulated implementation of said plans, but few ever dreamed a worldwide pandemic would force these plans into action. The rapid spread of the Covid-19 virus has impacted all of humanity, including thousands of businesses which include fiduciary services.
For those who serve as a fiduciary or provide fiduciary support services, having an effective and seamless business continuity plan is critical. Well laid out and executed business continuity plans will ensure continued adherence of our fiduciary duty; a legal obligation of the highest degree for one party to act in the best interest of another. The party charged with the obligation is the fiduciary, or one entrusted with the care of property or money. The fiduciary must exercise all the skill, care and diligence at their disposal when acting on behalf of the client.
During frightening and challenging times like the Covid-19 pandemic, fiduciary service providers have a heightened responsibility to protect our client’s property and investments. Unfortunately, this comes at a time when we are more focused on ourselves and our family’s wellbeing, making the seamless transition to a well-prepared business continuity plan critically important.
Life insurance trusts are one of the many unique and hard to value assets, however, it is probably the least forgiving in the absence of active oversight and management. If life insurance trusts are in your purview, be aware of the following;
- Gift Notices – provide your clients with extra time to provide funds to pay policy premiums. If possible, send gift notices out sooner than you have in the past. It is reasonable to expect grantors are facing increased financial challenges and health consequences resulting from the pandemic.
- Crummey Letters – be prepared for trust beneficiaries who may for the first time decide they want to withdraw present-day gifts made to the trust. Know what your options are in the event you don’t have enough funds to pay policy premiums.
- Policy Premiums – be sure to process incoming mail daily and quickly identify insurance premium notices. Be sure the amount requested is enough to sustain current policy benefits.
- Premium Payments – when premiums are paid to the carrier, call the carrier to confirm the premium has been received and applied to the correct policy.
- Variable Policies – review current sub-account allocations. How have the sub-accounts been affected? Is the current premium still sufficient to meet the goal of the policy? How has the policy performance/projection been affected? What are the Fixed Account or Guaranteed Interest account options?
- Grantor Jitters – many grantors will begin to question whether they want or need to continue funding their insurance trust. Be prepared to discuss policy details and the consequences for inadequate or discontinued funding by the grantor.
- Fiduciary Duty (ILITs) – remember that when serving as trustee of an ILIT your fiduciary duty is to the trust beneficiaries, not the grantor/insured. Even if you cannot maintain the current death benefit, you must consider all options in a timely manner to protect the interests of your client – the beneficiary.
The services of a professional trustee are most important and valuable during crises like the Covid-19 pandemic. It is our time to shine.
For helpful information regarding administration and management of trust owned life insurance (TOLI) please refer to our library of blogs on the subject.