Alert to Individuals Serving as Trustee over Trusts Holding Life Insurance Policies
By: Morris Law Group - June 12, 2013
Effective July 1, 2010, Florida Statute =A7736.0902 now limits both a trustee's duties and liability in connection with life insurance held within a trust. However, if you are currently serving as trustee, you must take certain measures to afford yourself such liability protection.
As long as the insured is a qualified person, the statute provides that a trustee will not be liable to the beneficiaries of the trust or any other person for any loss sustained with respect to the contract for life insurance and, unless otherwise provided in the trust instrument, the trustee now has no duty to determine whether the life insurance is or was procured with a proper insurable interest. Although, as stated above, if you are currently serving as trustee, you must take action to afford yourself such protection as trustee.
If you are serving as a trustee on a trust which owns a life insurance policy, it would be prudent for you to provide proper notice to the qualified beneficiaries of the trust that this section applies; by doing so, unless you receive an objection within 30 days from a beneficiary, you will be relieved of any duty to determine if the policy is a proper investment or if options under the life insurance policy's contract should be exercised. Additionally, you will not have an obligation to investigate the financial strength of the insurance company, diversify assets with respect to the life insurance or investigate the health or financial condition of the insured person. This can help you focus on your role of accepting funds from the insured, sending Crummey letters to the beneficiaries (if applicable) and paying the insurance premiums on time to avoid a lapse of the policy. If you are currently serving as Trustee over a trust which owns a life insurance policy and would like to provide proper notice to the beneficiaries of the trust to relieve the Trustee duties and liabilities described above, feel free to contact us at our office for assistance.
** Disclaimer Required by IRS Circular 230** Unless otherwise expressly approved in advance by the undersigned, any discussion of federal tax matters herein is not intended and cannot be used 1) to avoid penalties under the Federal tax laws, or 2) to promote, market or recommend to another party any transaction or tax-related matter addressed.