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

Where the Duty Comes From in Kansas

Kansas has enacted the Uniform Trust Code as the Kansas Uniform Trust Code, codified beginning at K.S.A. 58a-101, and has adopted the prudent investor rule in the Kansas Uniform Prudent Investor Act. Confirm the current section numbering with counsel before citing it in a memorandum.

Three duties carry the file. Prudence requires evaluating each asset as part of the overall portfolio and in light of the trust’s purposes rather than in isolation — a $1,500,000 death benefit inside an ILIT is a portfolio position with a required funding rate, a mortality-driven return profile, and a genuine risk of total loss. Impartiality requires balancing a current beneficiary who wants distributions against remainder beneficiaries whose entire interest is the death benefit. The duty to inform and report requires that qualified beneficiaries receive material information about trust assets, which for a life policy means telling them it is projected to lapse before it becomes a fact rather than after.

Two decisions from other jurisdictions bracket how these duties get judged in practice. 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, and addressed the limits of an exculpatory clause. 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 and recorded a real process. Neither binds a Kansas court. The pattern they establish is that the file, not the outcome, determines how the decision looks afterward. See a trustee’s duty on an underperforming policy.

Section One of the Memo: What the Policy Actually Does

The first section of the annual memorandum is factual and takes an hour once the documents arrive. Six items:

1. Ownership, confirmed from the carrier’s records. Not from the family’s description and not from a 2011 memo. In Kansas files, policies owned by a family farm corporation, an LLC, or a former employer — with the trust named only as beneficiary — are common enough that this has to be verified every year. A trust cannot direct disposition of a policy it does not own.
2. In-force illustration at current assumptions, requested in writing 90 days before the review date so a slow carrier does not push the review past its calendar.
3. In-force illustration at guaranteed assumptions — guaranteed maximum cost of insurance and guaranteed minimum credited rate. The gap between the two projections is the risk the trust is carrying. Our overview of what an in-force illustration is covers how to read them together.
4. A premium solve to a target age, commonly 100 or the contract’s maturity age. This converts funding from a habit into a number the trust can budget or cannot.
5. No-lapse guarantee status from the rider schedule and confirmed with the carrier, including whether every guarantee premium was paid on schedule. Guarantees are unforgiving about timing, and a lapsed guarantee changes the entire analysis.
6. Carrier financial strength ratings from at least two agencies.

Record two dates that never move: the year the guaranteed-assumption illustration projects lapse, and the conversion deadline on any convertible term policy. Both are contractual and knowable years ahead, which is exactly why a court will treat them as foreseeable.

Section Two: Whether the Purpose Still Exists

The second section asks the question most annual reviews avoid. Why does this trust hold this policy, and is that reason still true?

Transfer tax liquidity. Kansas imposes no state estate tax and no state inheritance tax, so there is no state-level exposure to fund. Many older Kansas ILITs were built against federal estate exposure calculated when the exemption was a small fraction of today’s. For most Kansas families that exposure no longer exists, which does not automatically mean the trust should be unwound — but it does mean the annual memo should say so rather than assume the 1998 rationale still holds.

Buy-sell and succession funding. Confirm the current agreement is in force and the insured is still a party. Where a partner retired or was bought out, the policy is orphaned and nobody has said so out loud.

Equalization. Common in Kansas farm and ranch families: the on-farm child takes the land, the off-farm children take the death benefit. This purpose usually survives, and disposing of the policy without renegotiating the plan with the family creates a conflict the department will hear about for a decade.

Support for a beneficiary with a disability. A policy on a parent’s life funding a special needs trust. Lapsing it is not a portfolio event; it is the collapse of that beneficiary’s future support. Tightest review calendar, most conservative posture, nothing done without public benefits counsel.

Write the category on the file. A review that never states the purpose cannot evaluate whether the purpose survives.

Memo section	Contents	Why it matters if challenged
One: what the policy does	Verified ownership, both in-force illustrations, premium solve, guarantee status, carrier ratings	Establishes the trustee knew the facts
Two: whether the purpose survives	Stated original purpose and a current assessment of it	Shows the decision was purpose-driven, not habitual
Three: disposition comparison	Every option priced and compared, with a recommendation	Distinguishes a considered choice from a default
Four: consent and tax	Instrument authority, beneficiary notice, issues routed to counsel	Shows duties to inform and to seek advice were met
Process record	Broker license number, providers solicited, offers received, selection rationale	Demonstrates a competitive process rather than a single offer
Second sign-off	Review by someone other than the preparer	Internal control the department can point to

Section Three: The Disposition Comparison

The third section compares every option in writing, in this order, and reaches a recommendation.

Reduce the face amount to a level the trust can fund. Preserves coverage and eliminates lapse risk in one step.

Nonforfeiture election. Ends premiums permanently while preserving a smaller paid-up death benefit. Right where gifting has stopped and beneficiaries would prefer a reduced benefit to none.

1035 exchange into a guaranteed contract. The correct answer where lapse risk, not the coverage itself, is the problem. Price the guarantee premium and understand the consequences of a late payment before recommending it.

Retained death benefit. The trust keeps a portion of the death benefit with no further premium obligation. Frequently the cleanest resolution for an equalization trust that cannot fund the full premium, and frequently forgotten.

Sale to a licensed provider. Appropriate when the purpose has ended, funding has stopped, the guaranteed illustration shows lapse well before life expectancy, the insured’s health has declined materially since issue, and the face amount is meaningful — generally $250,000 or more attracts competitive trust-owned interest, though smaller policies do transact. The U.S. Government Accountability Office’s study of the market (GAO-10-775) found sellers typically received roughly 10% to 35% of face value and, on average, several times what surrender would have paid. Expect 60 to 120 days from submission to funded closing. See selling an ILIT or trust-owned policy.

Surrender. Only after a market evaluation has been declined by the beneficiaries or has come back without an offer. Surrendering without checking is the disposition hardest to explain to a remainder beneficiary, because the comparison sits in a single carrier statement.

Do not sell when a no-lapse guarantee is intact and current, when the insured is in strong health for their age, when beneficiaries have not been informed and would object, or when the instrument does not clearly authorize disposition.

Kansas’s Viatical Settlements Act and the Fiduciary-to-Fiduciary Question

Kansas regulates these transactions under the Viatical Settlements Act of 2002, codified at K.S.A. 40-5001 through 40-5016 together with K.S.A. 40-5007a, 40-5009a, and 40-5012a, with administrative requirements at K.A.R. 40-2-31 setting minimum requirements for viaticating a policy. The regulator is the Kansas Insurance Department, headed by an elected Commissioner of Insurance.

Two points a trust officer should hold onto. First, the Department issues a distinct viatical representative and broker license, separate from an ordinary insurance producer license. That is the credential to demand. A person holding only a producer license is not thereby authorized to broker a settlement for a Kansas owner. See Kansas life settlement licensing.

Second, under the Act a viatical settlement broker is deemed to represent only the viator and owes the viator a fiduciary duty to act according to the viator’s instructions and in the viator’s best interest. Where the viator is a trustee, this creates a fiduciary on the other side of the table who is legally obligated to the trust. Use it. Give the broker written instructions, require that the case be shopped to multiple licensed providers, require all offers and all compensation in writing, and record which providers received the case and why the accepted offer was selected. A single unsolicited offer accepted without shopping is the fact pattern that reads worst afterward, and Kansas law gives you a clean reason to refuse it.

The market will also require the trust instrument or a certification of trust, documented trustee authority, the policy and all riders, an in-force illustration, verification of coverage from the carrier, and a HIPAA authorization satisfying 45 C.F.R. § 164.508 signed by the insured, not the trustee. Establish the grantor’s willingness before submitting a case. If a counterparty behaves badly, the complaint route belongs to the trust as owner — see Kansas Insurance Department consumer help.

Section Four: Consent and the Tax Issues to Route Out

Authority. Read the instrument for an express power to sell, exchange, or otherwise dispose of trust property, and for any provision requiring grantor consent or trust protector approval. Older Kansas ILITs were commonly drafted to hold a policy, not to trade one.

Beneficiary consent. Qualified beneficiaries have information rights under the Kansas Uniform Trust Code, and a prudent trustee notifies them of a proposed disposition of the trust’s principal asset even where consent is not strictly required. Written consents and releases from adult beneficiaries are standard. Minor, unborn, or incapacitated beneficiaries may require virtual representation, a nonjudicial settlement agreement, or a court proceeding. See consent issues when an irrevocable trust sells a policy.

Tax issues to identify and hand to counsel and the CPA — not to resolve in your own voice. Revenue Rulings 2009-13 and 2009-14 address basis and character on surrender and on sale of a life insurance policy. Section 13521 of the Tax Cuts and Jobs Act of 2017 modified those basis rules by eliminating the cost-of-insurance reduction and added reporting requirements for reportable policy sales under Internal Revenue Code § 6050Y. Internal Revenue Code § 101(a)(2), the transfer-for-value rule, can convert an otherwise tax-free death benefit into taxable income when a policy is transferred for consideration, subject to statutory exceptions — a point that matters as much for intra-family and entity-to-trust transfers families propose as alternatives as for a market sale. Internal Revenue Code § 2035 pulls certain life insurance transfers made within three years of death back into the gross estate, with an exception for transfers for full and adequate consideration.

Kansas imposes no state estate or inheritance tax, so no state-level transfer tax analysis layers on top of the federal one.

When the Driver Is Care Funding: KanCare

Some trust-owned policy questions arrive as care-funding problems rather than portfolio matters: the grantor is entering a skilled nursing facility and the family is inventorying every asset.

Kansas Medicaid operates as KanCare, with eligibility and financing administered by the Kansas Department of Health and Environment through its Division of Health Care Finance, and long-term services coordinated with the Kansas Department for Aging and Disability Services. 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. Kansas runs a medically needy program with a spend-down rather than the hard 300%-of-SSI income cap used in states such as Idaho, Nevada, and Oklahoma, which is why qualified income trusts rarely appear in Kansas files. Confirm current standards with KDHE.

Two structural distinctions matter to a trustee. A policy owned by a properly structured irrevocable trust is generally not the applicant’s countable resource, which is often the point of the arrangement; a policy owned by a revocable trust generally is. And proceeds paid to an irrevocable trust do not become the grantor’s resource, while proceeds paid to a revocable trust do. Whether either holds in a specific case depends on the instrument and on how the state treats it, which is a question for elder law counsel rather than for the trust officer.

Estate recovery is federally mandated under 42 U.S.C. § 1396p(b) and Kansas pursues it against the estates of deceased beneficiaries who received nursing facility services. A death benefit paid to a named beneficiary passes outside the probate estate; unspent proceeds sitting in the grantor’s own account at death generally do not.

Cost frames the runway conversation: the most recent CareScout (formerly Genworth) Cost of Care Survey figures for 2024 place a semi-private nursing facility room in Kansas at roughly $7,000 to $7,500 a month, below the national median near $9,277, so a given lump sum funds more months here than in most states. See Kansas Medicaid asset and income limits and the Kansas elder law attorney guide. Where a trustee needs a market read before making a recommendation, a free, no-obligation review starting from the cover page and an in-force illustration will produce one — and a documented “no market value” answer belongs in the file too.

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Frequently Asked Questions

Why does Kansas call the seller a viator rather than an owner?

Because the Kansas statute descends from the older viatical settlement framework rather than the newer life settlement model language many states adopted. The substance is the same: the viator owns the policy and has authority to sell it. The vocabulary is a useful signal about which statute and which license a company should be citing in Kansas.

What license should a Kansas trust department demand from a broker?

A viatical settlement representative or broker license issued by the Kansas Insurance Department under the Viatical Settlements Act of 2002. It is a separate credential from an ordinary insurance producer license, and holding a producer license alone does not authorize brokering a settlement for a Kansas owner. Verify the number with the Department before engaging.

How does the broker’s fiduciary duty help a trustee?

Under the Kansas Act a broker is deemed to represent only the viator and owes a fiduciary duty to act on the viator’s instructions and in the viator’s best interest. Where the viator is a trustee, that gives the trust a fiduciary on the other side of the table and a clean statutory basis for insisting on a competitive process rather than accepting an unsolicited offer.

What is the most common error in Kansas trust-owned policy files?

Assuming the trust owns the policy. A meaningful share of Kansas policies are owned by a family farm corporation, an LLC, or a former employer with the trust named only as beneficiary. A trust cannot direct disposition of a policy it does not own. Verify ownership from the carrier’s records annually rather than relying on an old memorandum.

Does Kansas use a Miller trust for nursing facility Medicaid?

Generally no. Kansas runs a medically needy program with a spend-down rather than the hard 300 percent of SSI income cap used in states like Idaho and Oklahoma, so qualified income trusts rarely feature in Kansas planning. A resident above the income standard contributes toward the cost of care. Confirm current standards with KDHE.

Is there a Kansas state estate or inheritance tax to plan around?

No. Kansas imposes neither, so there is no state-level transfer tax exposure for a trust to fund. Many older Kansas ILITs were built against federal estate exposure calculated when the exemption was far lower. That does not automatically mean unwinding the trust, but the annual memo should state the current position rather than assume the original rationale still holds.

Related Reading

• Sell Ilit Trust Owned Policy
• Trustee Duty Underperforming Policy
• Irrevocable Trust Sell Policy Consent
• What Is An In Force Illustration
• What Is A No Lapse Guarantee
• Life Settlement Licensing Kansas
• Kansas Insurance Department Consumer Help
• Kansas Medicaid Asset Income Limits
• Elder Law Attorney Life Settlement Guide Kansas

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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.