Trust-owned life insurance is the least-monitored asset class on most bank trust platforms, and the reason policy review has become standard practice is litigation — the line of cases involving unmonitored TOLI, including the Cochran v. KeyBank matter (verify citations and current status before relying on them). The exposure is not usually a bad purchase decision made decades ago. It is a policy that sat on the platform for fifteen years while nobody ran an illustration.
The classic silent failure is a universal life policy funded on assumptions that never materialized. The carrier’s annual statement shows a positive account value and everything looks fine. An in-force illustration run at guaranteed rates shows the policy lapsing at 84. That gap is invisible unless somebody asks the carrier for the illustration, and by the time it surfaces the remedies are expensive: a large premium catch-up the grantor no longer wants to fund, a reduced face amount, a surrender, or a sale.
Send us a redacted policy cover page. With appropriate trust authority, one page starts a free review, typically read within one to two business days, with no obligation to the bank or the trust. A written indication of secondary-market value is useful documentation for the review file even where no sale follows. Call (305) 209-7183.
In This Article
- What Belongs in the Annual TOLI Review Packet
- Confirm Authority Before Any Market Test Begins
- Beneficiary Consent and Impartiality
- Surrender Is Also a Disposition Decision
- Georgia’s Regulatory Framework
- Tax and Reporting the Trust Will Have to Handle
- Which TOLI Policies Are Worth Pricing
- How a Referral Works
- Frequently Asked Questions
What Belongs in the Annual TOLI Review Packet
The carrier’s annual statement is a report card on the past year, not a projection. A defensible review packet contains more: a current in-force illustration run at current assumptions and at guaranteed assumptions, the premium actually being paid against the premium required to carry the policy to maturity, the carrier’s current financial strength ratings, the cost-of-insurance trend on the product, confirmation of the beneficiary designation, and the insured’s current age and general health status where the trust is permitted to know it.
Run both illustration scenarios every year, not every third year. The guaranteed-assumption run is the one that surfaces the problem, and it is the one that shows a reviewing court or an internal auditor that the platform was actually monitoring the asset rather than filing statements.
Confirm Authority Before Any Market Test Begins
Two questions come before pricing. Does the trust instrument grant the trustee power to sell trust property generally, and is there any provision specifically directing that the policy be retained? Retention directives, common in older irrevocable life insurance trusts, change the analysis considerably and may require beneficiary agreement or court involvement to work around.
Georgia’s trust code and the state’s Uniform Prudent Investor Act framework supply the background duties — prudence, impartiality among beneficiaries, and the duty to keep beneficiaries reasonably informed. Read them together with the instrument. Where authority is ambiguous, the sequence that protects the institution is: get an opinion from trust counsel, notify beneficiaries, then test the market — not the reverse.
Beneficiary Consent and Impartiality
Selling a policy converts a future death benefit into present cash, which almost always shifts value between beneficiary classes. Current beneficiaries may prefer liquidity now; remainder beneficiaries lose the larger payout later. That is an impartiality question, and it is the one most likely to generate a complaint after the fact.
The practical protection is process. Notify all beneficiaries in writing, explain the alternatives considered — continue funding, reduce the face amount, exchange the policy, surrender, or sell — and document their responses. Where the class is broad or a beneficiary objects, non-judicial settlement agreement mechanics or a court instruction petition may be the cleaner route. Confirm the available options under Georgia’s trust code with trust counsel.
Surrender Is Also a Disposition Decision
Trust committees sometimes treat surrender as the conservative choice because no third party is involved. It is not conservative; it is a disposition at a single buyer’s price. Cash surrender value is what the issuing carrier will pay under its own schedule. It is not a market.
A life settlement prices the same contract on what an institutional buyer will pay for the death benefit, weighing the insured’s age and health, the premium load required to carry the policy, and the carrier’s strength. Commonly cited market ranges run roughly 10% to 35% of face value, and the GAO’s 2010 report (GAO-10-775) found settlement proceeds on the policies studied came in at several times cash surrender value. Neither figure predicts any specific policy. The point for the file is narrower: where a market test was available and was not performed, the trustee cannot show it obtained fair value. Our explainer on cash surrender value and the settlement versus surrender comparison cover the mechanics.
| Review finding | What it usually signals | Trustee action |
|---|---|---|
| Guaranteed-assumption illustration shows lapse before life expectancy | Policy is underfunded and will demand a premium call | Price all options, including a market test |
| Grantor has stopped making annual exclusion gifts | Grantor fatigue; the trust is drifting toward lapse | Notify beneficiaries and document alternatives |
| ILIT funded to pay an estate tax the family may no longer owe | Coverage purpose has expired | Revisit purpose with trust counsel before renewing premiums |
| Carrier raised cost-of-insurance charges | Illustrated funding plan no longer holds | Re-run both illustration scenarios and reassess |
| Instrument contains a retention directive | Authority to sell is constrained | Counsel opinion; consider beneficiary agreement or court instruction |
| No in-force illustration in the file for several years | Monitoring gap and institutional exposure | Request illustrations from the carrier immediately |
Georgia’s Regulatory Framework
Georgia regulates these transactions under the viatical settlement provisions of Title 33 of the Georgia Code, administered by the Georgia Office of Insurance and Safety Fire Commissioner. The framework requires provider and broker licensure, written disclosures to the seller, use of an independent escrow agent, and a rescission window after closing during which the seller can unwind the transaction.
For an institutional file, the diligence steps are straightforward: verify provider licensure through the Commissioner’s office, confirm that funds will be held in independent escrow and released only when the carrier confirms the ownership change, and retain the disclosure package delivered to the trust as seller. Our overview of Georgia life settlement licensing sets out the framework in more detail.
Tax and Reporting the Trust Will Have to Handle
A sale is a taxable event with a two-tier character: gain up to the policy’s cash surrender value over basis is generally ordinary income, and gain above that is generally capital gain. Under Rev. Rul. 2020-05, which conformed IRS guidance to the 2017 Tax Cuts and Jobs Act change, seller basis is generally total premiums paid without reduction for cost-of-insurance charges — a more favorable position than the earlier Rev. Rul. 2009-13 treatment.
Reporting follows. A reportable policy sale triggers IRC Sec. 6050Y information reporting, meaning Forms 1099-LS and 1099-SB will move among the buyer, the issuer, and the seller, and the trust will receive documentation it needs to handle on the fiduciary return. Coordinate with the trust’s tax preparer before closing rather than in filing season. This is a description of the rules, not tax advice — the trust’s own CPA should sign off.
Which TOLI Policies Are Worth Pricing
Screen before you convene a committee. The profile that prices: an insured roughly 70 or older, or any age with a material health change since issue; a death benefit of $100,000 or more; and permanent coverage — whole life, universal life, guaranteed universal life — or term still inside its conversion window. Policies in force at least two years clear the standard contestability rules.
The strongest candidates on a trust platform share a story: grantor fatigue with annual exclusion gifting, an ILIT funded to pay an estate tax the family may no longer owe, or an underperforming universal life contract heading toward a premium call nobody wants to make. What generally does not work: small face amounts, expired conversion privileges, and policies still serving a genuine liquidity need at death. See what policies qualify.
How a Referral Works
You send one document: the policy cover page, with appropriate trust authority. It identifies the carrier, product type, face amount, and issue date — enough for a preliminary read on whether the policy warrants a market test. No fee to the institution or the trust, no engagement, and no obligation on either side.
That first read typically comes back within one to two business days. If the policy looks viable, three more documents produce an indicative range: a current in-force illustration, the latest carrier statement, and a signed HIPAA authorization. From complete documentation through funding, a standard file usually runs about 60 to 120 days, which needs to accommodate beneficiary notice and any committee or counsel review on your side.
The trustee stays in control throughout. Nothing proceeds without your instruction, the file can be stopped at any point before closing, and any offer can be reviewed by trust counsel and the trust’s tax preparer 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, your institution, or a trust. Pine Lake Life Solutions does not provide legal, tax, or fiduciary counsel; trust counsel and the trust’s own tax professional should review any transaction before it is executed.
Frequently Asked Questions
Does the trustee need beneficiary consent to sell a trust-owned policy?
It depends on the instrument and the state’s trust code, but consent is not always required where the trustee holds a general power to sell trust property. Notice and documented consideration of the alternatives protect against an impartiality complaint regardless. Where the instrument contains a retention directive or a beneficiary objects, trust counsel should evaluate a non-judicial settlement agreement or a court instruction petition.
What should an annual TOLI review actually include?
At minimum, in-force illustrations run at both current and guaranteed assumptions, the premium being paid against the premium required to carry the policy to maturity, the carrier’s financial strength ratings, cost-of-insurance trends, and confirmation of the beneficiary designation. The carrier’s annual statement alone is not a review. The guaranteed-assumption run is what surfaces an underfunded universal life contract.
How is a settlement taxed for a trust seller?
Gain up to cash surrender value over basis is generally ordinary income and gain above that is generally capital gain. Under Rev. Rul. 2020-05, basis is generally total premiums paid without reduction for cost-of-insurance charges, reflecting the 2017 Tax Cuts and Jobs Act change from the earlier Rev. Rul. 2009-13 approach. The trust’s own tax preparer should confirm treatment for the specific facts.
What reporting does a sale trigger?
A reportable policy sale falls under IRC Sec. 6050Y information reporting, which generates Forms 1099-LS and 1099-SB moving among the buyer, the policy issuer, and the seller. The trust will receive documentation that has to be reflected on the fiduciary return. Coordinate with the trust’s tax preparer before closing rather than at filing time.
Who regulates life settlements in Georgia?
They fall under the viatical settlement provisions of Title 33 of the Georgia Code, administered by the Georgia Office of Insurance and Safety Fire Commissioner. The framework requires provider and broker licensure, written disclosures, independent escrow, and a post-closing rescission window. Verifying provider licensure through the Commissioner’s office is a standard institutional diligence step.
Is surrendering a policy the conservative choice for a trustee?
It is not conservative in the way committees often assume. Surrender is a disposition at the issuing carrier’s own schedule, not at a market price. Where a market test was reasonably available and was not performed, the trustee has no record demonstrating it obtained fair value for the asset.
Which trust-owned policies tend to price well?
An insured roughly 70 or older, or any age with a material health change since issue; a death benefit of $100,000 or more; and permanent coverage or term still inside its conversion window. Policies in force at least two years clear standard contestability rules. Small face amounts, expired conversion privileges, and policies still serving a real liquidity need generally do not.
How long does the process take on an institutional file?
A standard file typically runs about 60 to 120 days from complete documentation through funding. That timeline needs to accommodate beneficiary notice, committee review, and counsel sign-off on your side, so start earlier than the calendar suggests. The free initial read on a cover page usually comes back in one to two business days.
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Related Reading
- Cash Surrender Value Life Insurance
- Life Settlement Vs Surrender
- What Policies Qualify For Life Settlement
- Life Settlement Licensing Georgia
- Life Settlement Taxes Georgia
- 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.