Life Settlements for Trust Officers in Arkansas: A 2026 Practitioner’s Guide

Where the Duty Comes From

Arkansas has enacted the Uniform Trust Code as the Arkansas Trust Code, codified in Title 28 of the Arkansas Code, and has adopted the prudent investor rule. Confirm the specific sections with counsel before citing them in a memorandum, because Arkansas has amended these provisions over time and secondary sources are inconsistent about the numbering.

The substance is not in doubt, and it is what matters. Under the prudent investor framework a trustee evaluates each asset not in isolation but as part of the overall portfolio and in light of the trust’s purposes. A $2,000,000 death benefit sitting inside an ILIT is a portfolio position with a required funding rate, a mortality-driven return profile, and a real risk of total loss. The duty of loyalty requires administering it solely in the interest of the beneficiaries. The duty of impartiality requires attention to the tension between a current beneficiary who wants distributions and a remainder beneficiary whose interest is the death benefit. The duty to inform and report requires that beneficiaries receive material information about the trust’s assets — which for an ILIT means telling them the policy is projected to lapse before it becomes a fact.

Two cases outside Arkansas illustrate the range of outcomes and are worth having in your reference file. Rafert v. Meyer, 290 Neb. 219, 859 N.W.2d 332 (2015), arose from ILIT policies that lapsed after premium notices sent to the trustee were not forwarded; the Nebraska Supreme Court addressed the trustee’s duties and the reach of an exculpatory clause. On the other side, In re Stuart Cochran Irrevocable Trust, 901 N.E.2d 1128 (Ind. Ct. App. 2009), upheld a corporate trustee’s decision to exchange underperforming policies where the trustee had run a documented process. The difference between the two fact patterns is largely the file.

What an Annual Policy Review Should Contain

A defensible review is short, repeatable, and produced every year on the same schedule as any other asset review. Six components:

1. An in-force illustration at current assumptions, requested in writing from the carrier, showing the policy’s projected performance if the current premium continues.
2. A second in-force illustration at guaranteed assumptions — guaranteed maximum cost of insurance and guaranteed minimum credited rate. This is the one that reveals how much of the policy’s projected life is contractual and how much is a projection. Our overview of what an in-force illustration is covers how to read one.
3. A solve for the premium required to carry the policy to a target age, typically age 100 or the contract’s maturity age, so the trust’s funding requirement is a number rather than a habit.
4. Current carrier financial strength ratings from at least two agencies.
5. A confirmation of the trust’s Crummey withdrawal notice history, since gaps in that history create their own exposure independent of policy performance.
6. A written conclusion: continue as is, increase funding, restructure, or evaluate disposition.

The sixth item is the one that gets skipped and the one that matters. A review that ends without a recommendation is a document collection, not a review. See a trustee’s duty on an underperforming policy for how this looks when a policy has already deteriorated.

When Selling Is the Right Disposition, and When It Is Not

The honest answer is that a settlement is the correct disposition in a minority of trust-owned cases, and a trustee who treats it as a default is exposed in the opposite direction from one who never considers it.

It is worth evaluating when: the grantor’s insurance need has genuinely ended, whether because the estate tax exposure it was designed to cover no longer exists, a buy-sell obligation terminated, or the marriage that motivated the coverage ended; the trust cannot or will not be funded at the required premium and the grantor has stopped making gifts; the policy’s guaranteed-assumption illustration shows lapse well before life expectancy; the insured’s health has declined materially since issue, which raises market value; or the face amount is meaningful — generally $250,000 or more for a trust-owned policy to draw competitive interest, though smaller policies do transact.

It is the wrong answer when: the trust still serves its original purpose and funding is available; a no-lapse guarantee rider is intact and the guarantee premium has been paid on time, which often makes the contract more valuable held than sold; the insured is in good health for their age, which pushes projected life expectancy out and compresses offers; the beneficiaries have not been informed and would object; or the trust instrument does not clearly authorize a sale.

Rank the alternatives before reaching for the market: reducing the face amount to a level the trust can fund, a nonforfeiture election, a 1035 exchange into a guaranteed product, a retained death benefit arrangement in which the trust keeps a portion of the benefit with no further premium obligation, or a sale. Compare them in writing. Our page on selling an ILIT or trust-owned policy walks through the mechanics.

Disposition option	What the trust keeps	Ongoing premium	Best when
Continue as funded	Full death benefit	Required premium continues	Purpose intact and gifting continues
Reduce face amount	Smaller death benefit	Lower premium the trust can actually fund	Some coverage still needed, full premium unaffordable
1035 exchange to a guaranteed product	Guaranteed death benefit	Guarantee premium, paid on schedule	Lapse risk is the problem, not the coverage itself
Nonforfeiture election	Reduced paid-up benefit	None	No further funding available, modest benefit acceptable
Retained death benefit	A portion of the death benefit	None	Trust wants coverage without premium obligation
Sale to a licensed provider	Cash, historically 10-35% of face (GAO-10-775)	None after closing	Purpose ended, health declined, face amount meaningful
Surrender	Cash surrender value only	None	Only after a settlement review has been declined or unsuccessful

Consent, Notice, and the Instrument

Before any disposition, three questions have to be answered from documents rather than from memory.

Does the instrument authorize it? Many older ILITs were drafted to hold a policy, not to trade one. Look for an express power to sell, exchange, or otherwise dispose of trust property, and for any provision requiring the grantor’s consent or a trust protector’s approval. A trustee’s general power to sell trust property is usually sufficient, but “usually” is not the standard a court applies afterward.

Who has to be told, and who has to consent? Under the Arkansas Trust Code, qualified beneficiaries have information rights, and a prudent trustee will notify them of a proposed disposition of the trust’s principal asset even where consent is not technically required. Where consent is desirable, consider a written consent and release from all adult beneficiaries. Where a beneficiary is a minor, unborn, or incapacitated, virtual representation provisions or a court proceeding may be required. See consent issues when an irrevocable trust sells a policy.

What does the market require? A settlement provider will need the trust instrument or a certification of trust, evidence of the trustee’s authority, the policy and all riders, an in-force illustration, a verification of coverage from the carrier, and a HIPAA authorization satisfying 45 C.F.R. § 164.508 signed by the insured — not by the trustee — releasing medical records for life expectancy underwriting. The insured’s cooperation is not optional, and a grantor who refuses to sign ends the process regardless of what the trustee decides.

Arkansas licenses settlement providers and brokers through the Arkansas Insurance Department under the Life Settlements Act in Title 23, Chapter 81, Subchapter 8 of the Arkansas Code, which succeeded the Viatical Settlements Act enacted by Act 490 of 1997. Verify any counterparty’s license before engaging. See Arkansas life settlement licensing.

Pricing, Process, and What the Trustee Is Actually Buying

If the trustee proceeds, the process is a competitive one or it is not defensible. A broker owes a fiduciary duty to the policy owner — here, the trust — and runs the policy to multiple licensed providers. A single unsolicited offer accepted without shopping is the fact pattern that looks worst in hindsight.

On pricing, the reference point remains the U.S. Government Accountability Office’s study of the secondary market (GAO-10-775), which found policyholders who sold typically received roughly 10% to 35% of face value and, on average, several times what the same policies would have paid on surrender. Offers turn on the insured’s age and health, the death benefit, the cost of carrying the policy to maturity, and the buyer’s required return. Nothing about the carrier’s brand affects price. Expect 60 to 120 days from submission to funded closing.

Document the process, not just the outcome. The file should show which providers received the case, what each offered, why the accepted offer was selected, what the alternatives would have produced, and that beneficiaries were informed. That record is what distinguishes a Cochran outcome from a Rafert one. For the valuation vocabulary, see what policy fair market value means.

Tax and Estate Mechanics to Route to Counsel

These are the issues a trust officer should identify and hand to the trust’s tax counsel and the grantor’s CPA. Do not resolve them in your own voice.

Character and basis on sale. Revenue Ruling 2009-13 and Revenue Ruling 2009-14 address the income tax consequences of surrendering and of selling a life insurance policy, including how basis and character are determined for the seller and the buyer. Section 13521 of the Tax Cuts and Jobs Act of 2017 subsequently modified the basis rules by eliminating the cost-of-insurance reduction the 2009 guidance had applied, and added reporting requirements for reportable policy sales under Internal Revenue Code § 6050Y. The net effect on a specific trust depends on the contract and the numbers.

Transfer for value. Internal Revenue Code § 101(a)(2) can convert an otherwise tax-free death benefit into taxable income when a policy is transferred for valuable consideration, subject to statutory exceptions. This is relevant not only to a sale into the secondary market but to intra-family and intra-trust transfers a family may propose as an alternative.

The three-year rule. Internal Revenue Code § 2035 pulls certain transfers of life insurance made within three years of death back into the gross estate, with an exception for transfers for full and adequate consideration. Any restructuring that moves a policy between the grantor and a trust needs to be analyzed against it.

Arkansas transfer taxes. Arkansas imposes no state estate tax and no state inheritance tax, so the state-level planning pressure that drives ILIT decisions in Connecticut or Oregon does not exist here. That is one reason a number of older Arkansas ILITs were funded to solve a federal estate tax problem that current exemption levels have made irrelevant for the family — which is precisely the fact pattern in which a disposition analysis becomes appropriate.

When the Driver Is Care Funding: Arkansas Medicaid

A meaningful share of trust-owned policy questions in an Arkansas trust department arrive not as portfolio matters but as care-funding problems: the grantor is entering a nursing facility, the family is looking at every asset, and someone asks whether the policy can be turned into cash.

The relevant facts. Arkansas long-term services and supports are administered by the Arkansas Department of Human Services through its Division of Medical Services, with home and community-based alternatives under the ARChoices in Homecare waiver. The countable resource limit for a single applicant is $2,000. Life insurance is measured by total face value: $1,500 or less on the applicant’s life is excluded outright; above that, the cash surrender value counts. Institutional eligibility uses the special income limit of 300% of the SSI federal benefit rate, adjusted every January, landing near $2,980 per month for 2026 — confirm the current figure with DHS.

Two distinctions matter to a trustee. First, a policy owned by an irrevocable trust is generally not the applicant’s countable resource in the first place, which is often the entire point of the structure; a policy owned by a revocable trust generally is. Second, proceeds paid to an irrevocable trust do not become the grantor’s resource, but proceeds paid to a revocable trust do. Whether either result holds in a specific case depends on the instrument and on how the trust is treated under the state’s rules, which is a question for elder law counsel, not for the trust officer.

Cost context for the runway conversation: the most recent CareScout (formerly Genworth) Cost of Care Survey figures for 2024 place a semi-private nursing facility room in Arkansas at roughly $6,500 to $7,000 a month — among the lowest in the country — against a national median near $9,277. A given lump sum therefore funds substantially more months of care here than in most states. See Arkansas Medicaid asset and income limits and, for the referral relationship, the Arkansas elder law attorney guide. If a trustee wants a market read on a specific policy before making a recommendation, a free, no-obligation review starting from the policy cover page and an in-force illustration will produce one.

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Frequently Asked Questions

Does an Arkansas trustee have to consider selling a trust-owned policy?

A trustee has to consider the asset. Under the prudent investor framework adopted in Arkansas, a policy is a portfolio position that must be evaluated in light of the trust’s purposes, and a documented annual review is the practical expression of that duty. Whether a sale is appropriate is a separate judgment. Never considering the question is the harder position to defend.

What should an annual trust-owned policy review include?

In-force illustrations at both current and guaranteed assumptions, a premium solve to carry the policy to a target age, current carrier financial strength ratings, confirmation of the Crummey notice history, and a written conclusion recommending a course of action. The written conclusion is the component most often omitted and the one that turns a document collection into a review.

Do beneficiaries have to consent before a trustee sells a policy?

It depends on the instrument and the circumstances. Qualified beneficiaries have information rights under the Arkansas Trust Code, and a prudent trustee notifies them of a proposed disposition of the trust’s principal asset regardless. Written consents and releases from adult beneficiaries are common practice. Minor, unborn, or incapacitated beneficiaries may require virtual representation or a court proceeding.

Who signs the HIPAA authorization when a trust owns the policy?

The insured, not the trustee. A settlement provider needs medical records for life expectancy underwriting, and that release must satisfy 45 C.F.R. section 164.508 and be signed by the person whose records they are. A grantor who declines to sign ends the process no matter what the trustee has decided, which is worth establishing before a case is submitted.

How do the 2009 revenue rulings and the 2017 tax act interact on a policy sale?

Revenue Rulings 2009-13 and 2009-14 addressed basis and character on surrender and sale of a policy. Section 13521 of the Tax Cuts and Jobs Act of 2017 then modified the basis treatment by eliminating the cost-of-insurance reduction, and added reporting for reportable policy sales under IRC section 6050Y. Identify the issue and route the analysis to the trust’s tax counsel.

Does Arkansas impose a state estate or inheritance tax?

No. Arkansas has neither, which means the state-level planning pressure that sustains ILIT funding in states with their own transfer taxes does not exist here. A number of older Arkansas ILITs were funded to solve a federal estate tax exposure that current exemption levels have made irrelevant for the family, and that is exactly when a disposition analysis becomes appropriate.

Related Reading

• Sell Ilit Trust Owned Policy
• Trustee Duty Underperforming Policy
• Irrevocable Trust Sell Policy Consent
• What Is An In Force Illustration
• What Is Policy Fair Market Value
• Life Settlement Licensing Arkansas
• Arkansas Medicaid Asset Income Limits
• Arkansas Insurance Department Consumer Help
• Elder Law Attorney Life Settlement Guide Arkansas

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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.