The richest source of life settlement candidates in a Maryland estate practice is not the crisis file — it is the irrevocable life insurance trust holding a policy bought to pay an estate tax the client will never owe. Those trusts were funded in a different exemption era, the grantor has grown tired of writing annual exclusion checks, and the policy is drifting toward lapse while nobody treats it as an asset.
Maryland adds a wrinkle most states do not have. Maryland imposes both a state estate tax, with an exemption that has been fixed at $5 million rather than indexed to the federal amount, and a separate inheritance tax on bequests to non-lineal beneficiaries — confirm the 2026 rates and exemption with the Comptroller of Maryland before relying on them. That combination means some Maryland ILITs still serve a real liquidity purpose while others became redundant years ago, and telling the two apart is the planning work.
Send us a redacted policy cover page. With the client’s or trustee’s permission, one page starts a free review. Initial read in one to two business days, no obligation for you or the trust. Call (305) 209-7183.
In This Article
- Over-Insured ILITs Are the Core Opportunity
- Business-Adjacent Policies Nobody Reassigned
- The Trustee’s Options Are Broader Than Surrender
- Tax Contours to Flag for the Client’s CPA
- Maryland’s Regulatory Framework for Settlements
- What Makes a Referrable Case
- How a Referral Works
- Frequently Asked Questions
Over-Insured ILITs Are the Core Opportunity
Federal exemption levels after the 2025 legislation left a large population of trusts holding coverage purchased solely to fund a federal estate tax bill that no longer exists for that family — verify the exact 2026 federal exemption amount before putting a number in front of a client. What remains is a trust with a single illiquid asset, a premium obligation, and a purpose that expired.
The tell is grantor fatigue. Crummey notices go out, the gift does not come in, the trustee borrows against cash value or lets the policy run on a shrinking account value, and the in-force illustration quietly shows a lapse date inside the insured’s life expectancy. At that point the trust is not preserving wealth; it is consuming it.
Business-Adjacent Policies Nobody Reassigned
Maryland’s professional-services and government-contracting economy produces a steady supply of orphaned business coverage. A buy-sell agreement funded on a partner who retired years ago. Key-person coverage that survived the sale of the company. A split-dollar arrangement that was unwound on paper while the underlying policy stayed in force with an unclear owner.
These are estate-adjacent files because they surface during succession planning, not during insurance review. When you find one, the same three questions apply: who owns it, who still needs the death benefit, and what would the secondary market pay for it. Our overview of how the policy options work covers the alternatives a trustee or owner should weigh.
The Trustee’s Options Are Broader Than Surrender
When premiums exceed what the grantor will keep gifting, a Maryland trustee’s realistic choice set is: reduce the face amount, convert to reduced paid-up, exchange into a lower-cost contract, surrender for cash value, or test the secondary market. In practice, the last one is the one that gets skipped — usually because nobody on the file knows it exists.
Maryland’s Trust Act, codified at Md. Code, Estates & Trusts Title 14.5, and the state’s prudent investor provisions frame the trustee’s duty to manage trust property with care and to consider the trust’s purposes and beneficiaries. A trustee who accepts cash surrender value without documenting what the market would have paid has made a decision that a beneficiary can later question. Documenting the comparison is cheap; reconstructing it after a complaint is not.
| File pattern | What usually went wrong | Question to ask |
|---|---|---|
| ILIT funded for federal estate tax liquidity | Exemption levels moved; the tax the policy was bought to pay is gone | Does the trust still have a liquidity purpose in 2026? |
| Maryland estate or inheritance tax exposure | Maryland’s separate $5M-level estate tax and inheritance tax may still justify coverage | Confirm exposure before recommending any unwind |
| Grantor stopped funding Crummey gifts | Premiums come from cash value; lapse date moves inside life expectancy | Pull an in-force illustration at guaranteed rates |
| Buy-sell policy on a retired partner | Agreement was amended; the policy never was | Who owns it and who still needs the benefit? |
| Split-dollar unwound on paper only | Ownership and premium responsibility left ambiguous | Resolve ownership before any valuation |
| Trustee about to surrender for cash value | No documented comparison to secondary-market value | Document the alternative before acting |
Tax Contours to Flag for the Client’s CPA
Proceeds from a sale are taxed in three tiers: amounts up to basis are a tax-free return of premium, amounts between basis and cash surrender value are ordinary income, and anything above cash surrender value is generally long-term capital gain. A reportable policy sale also triggers IRC § 6050Y information reporting, so the client or trust will receive Forms 1099-LS and 1099-SB and will ask what they are.
Maryland layers its own income tax on top, and Maryland taxes capital gain as ordinary income at the state level, with county piggyback rates on top of the state rate — confirm 2026 rates with the Comptroller. None of this is advice you should be giving alone; loop in the client’s CPA early. Our Maryland life settlement tax overview lays out the framework in more detail.
Maryland’s Regulatory Framework for Settlements
Maryland regulates these transactions through its viatical settlement provisions in Md. Insurance Article Title 8, administered by the Maryland Insurance Administration. Provider licensure, disclosure requirements, and anti-fraud provisions aimed at stranger-originated life insurance are the structural protections you would expect a state framework to carry.
For a trust-owned policy, the diligence list is short: confirm provider authority with the MIA, confirm independent escrow, and confirm that the trustee has authority under the trust instrument to sell the policy. If the instrument is silent or ambiguous, that is a drafting question to resolve before the transaction, not during it. See Maryland life settlement licensing and regulation for the framework.
What Makes a Referrable Case
Policies that price in the secondary market share a profile: an insured roughly 70 or older, or any age with a material health change since issue; a death benefit of $100,000 or more; permanent coverage, guaranteed universal life, or convertible term still inside its window; and a policy in force past the standard waiting period. Trust-owned universal life with a deteriorating illustration is the single most common candidate in an estate practice.
Cases that generally do not work: small face amounts, expired-conversion term, a healthy insured in their early sixties, or coverage the family genuinely still needs. Our screen at what policies qualify for a life settlement takes about two minutes to run.
How a Referral Works
You send the policy cover page, with the client’s or trustee’s permission — nothing else. That page shows the carrier, product type, face amount, and issue date, which is enough for a preliminary read. There is no fee, no engagement, and no obligation on either side.
The first read typically returns within one to two business days. If the policy looks viable, an indicative range needs three more documents: a current in-force illustration run at both guaranteed and current assumptions, the latest carrier statement, and a signed HIPAA authorization. A standard file runs roughly 60 to 120 days from complete documentation through funding.
The client or trustee stays in control throughout, can stop at any point before closing, and can have you and an independent advisor review any offer before acceptance. Call (305) 209-7183 or send the cover page for a free review.
This page is educational only and is not legal, tax, or investment advice for you or your client. Pine Lake Life Solutions does not provide legal or tax counsel; independent counsel should review any transaction before it is executed.
Frequently Asked Questions
Can a trustee sell a trust-owned policy in Maryland?
Generally yes, where the trust instrument grants the power to sell trust property and the sale is consistent with the trustee’s duties under the Maryland Trust Act at Md. Code, Estates and Trusts Title 14.5. If the instrument is silent or ambiguous about disposing of insurance, resolve that question before the transaction begins. Beneficiary notice or consent considerations should be reviewed with counsel.
Does Maryland have its own estate tax that changes the analysis?
Yes. Maryland imposes a state estate tax with an exemption that has been held at the $5 million level rather than tracking the federal amount, plus a separate inheritance tax on bequests to certain non-lineal beneficiaries. Verify current 2026 rates and thresholds with the Comptroller of Maryland. A trust that is redundant for federal purposes may still serve a Maryland purpose.
How are settlement proceeds taxed?
In three tiers: amounts up to basis are a tax-free return of premium, amounts between basis and cash surrender value are ordinary income, and amounts above cash surrender value are generally long-term capital gain. A reportable policy sale also triggers IRC Section 6050Y reporting on Forms 1099-LS and 1099-SB. The client’s CPA should run the actual numbers.
What documents does a trustee need to get an indicative range?
Four: the policy cover page, a current in-force illustration, the latest carrier statement, and a signed HIPAA authorization. The cover page alone is enough for a free preliminary read. Nothing beyond the cover page is needed to find out whether the file is worth pursuing.
Does a settlement affect the trust’s remaining beneficiaries?
It replaces a contingent death benefit with present cash inside the trust, which changes the distribution picture and can change the relative position of income and remainder beneficiaries. That is exactly why the analysis and any required notice belong with trust counsel. Documenting the reasoning protects the trustee either way.
Which Maryland agency oversees these transactions?
The Maryland Insurance Administration, under the viatical settlement provisions of Md. Insurance Article Title 8. Confirming provider authority through the MIA and confirming that funds sit in independent escrow until the carrier records the ownership change are both reasonable diligence steps.
How long does a trust-owned case take?
About 60 to 120 days from complete documentation through funding for a standard file. Trust-owned policies sometimes take longer because trustee authority, beneficiary notice, and internal approvals add steps. The initial free read on a cover page still comes back in one to two business days.
Is there any cost to the attorney or the trust for a review?
No. The review is free and carries no obligation for you, the client, or the trust. If no viable market exists for the policy, you get that answer quickly and the file moves on to the other options: reduced paid-up, reduced face amount, exchange, or surrender.
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Related Reading
- How It Works Policy Options
- What Policies Qualify For Life Settlement
- Life Settlement Taxes Maryland
- Life Settlement Licensing Maryland
- Education Center
Pine Lake Life Solutions does not purchase life insurance policies and does not provide legal, tax, or investment advice. Information provided is for educational purposes only. Eligibility for any option, including life settlements, is not guaranteed and depends on individual circumstances, policy terms, underwriting, and market conditions. Consult independent legal, tax, or financial professionals before making decisions regarding a life insurance policy.