Trust-owned life insurance is the most under-managed asset class on most bank trust platforms, and the failure mode is silent: nobody notices the policy is underfunded until the illustration shows it lapsing inside the insured’s life expectancy. By then the choices are worse and the file is harder to defend.
The reason is structural. A TOLI policy generates no monthly statement anyone reads, no performance report, and no rebalancing prompt. The carrier’s annual statement arrives, gets filed, and premiums keep going out. Litigation over unmonitored TOLI — the line of cases commonly cited in trust-officer training, including Cochran v. KeyBank (verify the citation and current status before relying on it) — is why annual policy review became standard practice rather than an enhancement.
Send us a redacted policy cover page. With the appropriate trust authority, one page produces a free preliminary read, typically within one to two business days, with no obligation to the trust or to the institution. Call (305) 209-7183.
In This Article
- The Annual Review Packet Should Not Be the Carrier’s Annual Statement
- The Uniform Prudent Investor Act Applies to the Policy
- When Premiums Outrun the Grantor’s Gifting
- Documenting the Decision for the Beneficiaries
- The Over-Insured ILIT Problem
- Maryland Regulatory Framework and Diligence
- What a Referrable Policy Looks Like
- How a Referral Works
- Frequently Asked Questions
The Annual Review Packet Should Not Be the Carrier’s Annual Statement
The carrier’s annual statement tells you what happened last year. It does not tell you whether the policy will be in force when the insured dies. That requires a current in-force illustration run at two sets of assumptions: guaranteed, and current. The gap between those two projections is the entire risk in a universal life contract.
Run at guaranteed rates, a great many universal life policies issued in the higher-crediting-rate era lapse well before life expectancy at the premium currently being paid. Run at current assumptions, the same policy may look fine. A review packet with only one of those projections in it is not a review. Add the cost-of-insurance trend, the current credited rate versus the rate illustrated at issue, and the premium required to carry to age 100, and the file starts to answer the question a beneficiary will eventually ask.
The Uniform Prudent Investor Act Applies to the Policy
Maryland has adopted the Uniform Prudent Investor Act, codified in the Estates and Trusts Article, and the Maryland Trust Act governs trustee duties more broadly. A trustee holding an insurance contract has an affirmative duty to monitor it as an asset — not merely to pay the premium when the bill arrives. Confirm the current statutory framework and any applicable delegation or direction provisions in the trust instrument with counsel.
The distinction that matters is between administering a policy and managing one. Administering means premiums go out on time. Managing means someone can articulate why this contract, at this face amount, with this premium, is still the right holding for this trust. Where the instrument permits delegation to an insurance consultant, delegating the analysis is often the cleaner path — but the delegation itself has to be documented.
When Premiums Outrun the Grantor’s Gifting
This is the moment that forces a decision. The grantor’s Crummey gifting stops, or slows, or the annual exclusion no longer covers the required premium. The real option set at that point has four entries: reduce the face amount to a level the trust can carry, convert to a reduced paid-up or extended term nonforfeiture option if the contract allows, surrender for cash value, or test the secondary market.
In practice the fourth option is the one that gets skipped, usually because nobody on the platform has done it before. It is also the only one that produces a market price rather than a contractual formula. Commonly cited industry ranges run roughly 10% to 35% of face value, and the GAO’s 2010 report (GAO-10-775) found settlement proceeds substantially above cash surrender value on the policies reviewed. Our settlement vs. surrender comparison sets the two side by side.
Documenting the Decision for the Beneficiaries
Whichever exit is chosen, the memorandum in the file should contain the same elements: the in-force illustration at both assumption sets, the carrier’s dated cash surrender value, the annual premium required to carry the policy to maturity, any market indication obtained, and the reasoning connecting the disposition to the trust’s purposes and the beneficiaries’ interests.
Beneficiary notice practice depends on the instrument and on Maryland’s trust notice provisions — confirm with counsel. What is consistent across institutions is that a surrender documented with a market indication in the file is a defensible business judgment, and a surrender documented with nothing but the carrier’s number is an assumption waiting to be challenged.
| Exit | What the trust receives | What it costs the beneficiaries | Typically considered? |
|---|---|---|---|
| Reduce face amount | Lower premium, policy stays in force | Smaller death benefit | Yes |
| Reduced paid-up nonforfeiture option | No further premiums, reduced permanent coverage | Materially smaller death benefit | Sometimes |
| Surrender for cash value | The carrier’s contractual formula | Death benefit ends entirely | Almost always |
| Sell on the secondary market | A market price on the death benefit | Death benefit goes to the buyer | Usually skipped |
| Lapse for nonpayment | Nothing | Everything | The default when nobody reviews |
| Continue paying and monitor | Coverage retained | Ongoing premium drain if underfunded | Requires a dual-assumption illustration |
The Over-Insured ILIT Problem
A meaningful share of ILITs on any trust platform were funded to pay an estate tax the grantor’s estate will not owe at current federal exemption levels. Verify the exact 2026 federal exemption amount and any scheduled changes before relying on a specific figure, and note that Maryland is one of the few states with both a state estate tax and an inheritance tax — confirm the current Maryland exemption threshold and inheritance-tax exemptions with the Comptroller before advising, because that combination can keep an ILIT relevant in Maryland when it would be redundant elsewhere.
Where the analysis does show the trust is over-insured relative to any remaining liability, the policy is a legacy holding funded for a purpose that no longer exists, and the review should say so in writing. That is the single richest source of settlement candidates on most platforms.
Maryland Regulatory Framework and Diligence
Settlements in Maryland are governed by the viatical settlement provisions of Md. Insurance Article Title 8, with the Maryland Insurance Administration as licensing and enforcement authority. For an institutional file, the diligence steps are straightforward: confirm current Maryland authority through the MIA, confirm that funds are held by an independent escrow agent and released only on the carrier’s acknowledgment of the ownership change, and confirm that the trust’s authority to sell the policy is either express in the instrument or obtained. Our overview of Maryland life settlement licensing covers the framework, and Maryland life settlement tax treatment covers the reporting side.
What a Referrable Policy Looks Like
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 — universal life, guaranteed universal life, whole life — or convertible term still inside its window. Policies in force at least two years clear the standard contestability rules. A policy already flagged as underfunded on the illustration is often the strongest candidate, not the weakest.
Generally not candidates: small face amounts, expired-conversion term, or a healthy insured in their early sixties. Our qualification screen gives the criteria in plain terms.
How a Referral Works
With the appropriate trust authority, you send one page: the policy cover page or declarations page. It names the carrier, product type, face amount, and issue date — enough for a preliminary read on whether the policy has market value worth documenting in the review file. No engagement, no fee, no obligation to the trust or the institution.
The first read typically comes back in one to two business days. If viable, an indicative range requires four documents in total: the cover page, a current in-force illustration, the latest carrier statement, and a signed HIPAA authorization. A standard file then runs roughly 60 to 120 days from complete documentation through funding.
The trustee controls every step and can stop before closing. Any indication obtained belongs in the annual review file whether or not a sale proceeds — it is the evidence the market was tested. Send the cover page or call (305) 209-7183.
This page is educational only and is not legal, tax, or investment advice for a trustee, a trust, or a beneficiary. It is not a recommendation to sell or retain any policy. Independent counsel should review any transaction before it is executed.
Frequently Asked Questions
What belongs in a TOLI annual review packet?
At minimum, a current in-force illustration run at both guaranteed and current assumptions, the carrier’s dated cash surrender value, the premium required to carry the policy to maturity, and a short memorandum tying the holding to the trust’s purposes. The carrier’s annual statement alone is not a review.
Does the Uniform Prudent Investor Act really cover an insurance policy?
Maryland has adopted the UPIA within the Estates and Trusts Article, and trustee duties are governed more broadly by the Maryland Trust Act. A trustee holding a policy generally has a duty to monitor it as an asset rather than simply pay premiums. Confirm the current statutory framework and any delegation provisions with counsel.
Is surrendering a policy ever the right answer?
Frequently. The issue is not the outcome but the record. A surrender documented alongside a market indication is a defensible business judgment; a surrender documented with only the carrier’s number leaves no evidence that fair value was investigated.
How much more does the secondary market typically pay?
Commonly cited industry ranges run roughly 10% to 35% of face value, and the GAO’s 2010 report (GAO-10-775) found proceeds substantially exceeded cash surrender value on the policies studied. Pricing turns on age, health, face amount, and premium load, so only a current valuation is meaningful.
Does the trust need express authority to sell the policy?
Authority may come from the instrument’s general powers, a specific insurance provision, applicable statute, or beneficiary consent, and practice varies. This should be confirmed with counsel before any sale, and the authority relied upon should be identified in the file.
What tax reporting follows a sale?
A reportable policy sale triggers IRC Section 6050Y information reporting, generally producing Forms 1099-LS and 1099-SB. Gain up to cash surrender value over basis is generally ordinary income and gain above that is generally capital gain. A tax professional should handle the return position.
Are Maryland estate taxes still a reason to keep an ILIT funded?
Maryland is one of the few states with both a state estate tax and an inheritance tax, which can keep an ILIT relevant even where the federal exemption makes it redundant. Confirm the current Maryland exemption threshold and inheritance-tax exemptions with the Comptroller before relying on this.
How long does the process take?
A standard file runs roughly 60 to 120 days from complete documentation through funding, which should be built into any review or distribution timeline. An initial free read on a cover page usually comes back within one to two business days.
Find out what your policy is worth — free, confidential, no obligation.
A 15-minute educational review covers your eligibility, every alternative, and a realistic view of what each path would net you.
Related Reading
- Life Settlement Vs Surrender
- Cash Surrender Value Life Insurance
- What Policies Qualify For Life Settlement
- Life Settlement Licensing Maryland
- Life Settlement Taxes 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.