Life Settlements for Montana Corporate Trust Officers: A 2026 Practice Guide

Montana’s Uniform Trust Code: Title 72, Chapter 38

Montana adopted the Uniform Trust Code effective in 2013, codified at Title 72, chapter 38 of the Montana Code Annotated. That is a relatively recent adoption, and it matters operationally: a large share of the trusts sitting in Montana trust departments were drafted before the UTC applied, by drafters working from a different default framework. Confirm current section numbering before it goes into a memo, but the provisions a trust officer should know by heart are:

• § 72-38-801 — duty to administer. The trustee shall administer the trust in good faith, in accordance with its terms and purposes and the interests of the beneficiaries.
• § 72-38-804 — prudent administration. The trustee shall administer the trust as a prudent person would, exercising reasonable care, skill, and caution. This is the hook for everything that follows in an insurance file.
• § 72-38-808 — powers to direct. Where the terms of a trust confer a power on a person other than the trustee, the trustee’s obligations in responding to that direction are governed here. Read it alongside the instrument in every directed file.
• § 72-38-813 — duty to inform and report. The obligation to keep qualified beneficiaries reasonably informed about the administration and the material facts necessary to protect their interests. In an insurance trust this is a live obligation, not a formality.

Montana’s prudent investor provisions sit separately, in Title 72, chapter 34, and carry the familiar structure: a portfolio standard rather than an asset-by-asset one; a duty to diversify unless special circumstances mean the trust’s purposes are better served without diversification; a duty to review trust assets within a reasonable time after accepting the trusteeship; and duties of care in selecting, instructing, and monitoring any delegate.

On duration: Montana is not a perpetual-trust jurisdiction in the manner of South Dakota or Delaware, and its perpetuities treatment should be confirmed with counsel before you project how long a trust will hold a contract. That projection is not academic — a policy’s viability at age 95 is a different question from its viability at 105, and the trust’s expected duration is one input into whether continued funding makes sense.

Prudent Administration and the Trust’s Only Liquid Asset

The classic Montana trust is concentrated and illiquid by design, and the policy inside it is usually there to solve exactly that problem. Three recurring purposes:

1. Equalization. One child takes the operation; the policy funds the others. If the policy fails, the equalization fails, and the family conflict the settlor spent money to prevent arrives anyway.
2. Buy-sell funding. A ranch or family entity agreement obligating a purchase at a death, funded by insurance. If the policy lapses, the obligation survives and the funding does not.
3. Liquidity for taxes and debt. Estate settlement costs, operating debt, or a lender’s requirement. Montana imposes no estate tax and no inheritance tax, so the federal exposure is the relevant one at current exclusion levels — but operating debt does not care about tax law.

In each case the policy is not a portfolio holding; it is a funded promise. That framing changes the analysis. A trustee assessing an equity position asks whether the allocation is appropriate. A trustee assessing a funded promise asks a harder question: is this contract going to be in force on the day the promise comes due?

Answering that requires one document ordered annually — a current in-force illustration, run at both guaranteed and current assumptions, requested from the carrier in writing at no cost. From it a trustee extracts the projected lapse age at each assumption set and, critically, the change from the prior year’s illustration. A projection that moved from age 99 to age 90 in twelve months is a material adverse event, and the response to it must be documented whether or not the response is to do nothing.

The related structural point most often missed: the duty to diversify has a special-circumstances exception, and an insurance trust is the archetypal case. But the determination has to be made — a page at acceptance recording the trust’s purpose, the settlor’s intent that the trust hold the policy, and the trustee’s evaluation of that concentration — and it has to be revisited when circumstances change. The general problem of holding a deteriorating contract is at a trustee’s duty toward an underperforming policy.

Rafert v. Meyer and the Lapse Nobody Was Watching

Rafert v. Meyer, 290 Neb. 219 (2015), is the case every trust officer administering insurance should be able to summarize in two sentences. A trustee of an insurance trust failed to provide the carrier with a current address; premium notices went undelivered; policies with substantial face value lapsed. The Nebraska Supreme Court held that a broad exculpatory clause did not shield the trustee from liability for failing to perform basic administrative duties.

It is not Montana authority and it does not bind a Montana court. It is nonetheless the most useful case in the field, because it describes the actual failure mode. Trust departments do not lose these cases on investment judgment. They lose them on mail.

The administrative controls that address it are unglamorous and cheap:

• Confirm annually that each carrier holds the trustee’s current address of record and servicing contact. Do this in writing and keep the confirmation. Address-of-record failures survive mergers, department reorganizations, and office moves, which is exactly when they occur.
• Log receipt of premium notices. A notice that did not arrive is information; a notice that arrived and was not acted on is a different problem, and you cannot tell which you have without a log.
• Reconcile premiums paid against premiums due annually, not just at year-end close. A short premium can void a no-lapse guarantee irreversibly.
• Verify the beneficiary designation and ownership of record with the carrier rather than relying on the trust file. Carrier records and trust records diverge more often than trust officers expect, particularly after a trustee succession.
• In directed files, forward everything material to the adviser in writing and keep the transmittal. Holding a notice showing an imminent lapse while claiming excluded status is not a posture that improves with time.

A structured periodic review is the mechanism that catches all of this at once; what one looks like is set out at auditing a trust-owned policy. For a Montana trust department administering files across a state where the settlor’s ranch, the beneficiaries, and the agent of record may be in three different counties, the review is also the only reliable point of contact with the facts.

Item	Montana posture (confirm before relying on it)
Trust code	UTC state — Montana Uniform Trust Code, Mont. Code Ann. Title 72, ch. 38 (adopted 2013)
Duty to administer	§ 72-38-801
Prudent administration	§ 72-38-804
Powers to direct	§ 72-38-808 — read with the instrument in every directed file
Duty to inform and report	§ 72-38-813 — qualified beneficiaries
Prudent investor	Mont. Code Ann. Title 72, ch. 34
Perpetuities	Not a perpetual-trust jurisdiction — confirm duration treatment with counsel
Insurance regulator	Commissioner of Securities and Insurance, Office of the State Auditor, Helena
Insurance code	Mont. Code Ann. Title 33; confirm current settlement part with the Commissioner
State estate / inheritance tax	None / none
State income tax	Yes — two brackets, top rate 5.9% for 2024 and later
Medicaid individual resource limit	$2,000 (ABD / institutional) as of 2026 — confirm with DPHHS
Skilled nursing cost	Roughly $9,000–$10,500/month semi-private in recent surveys — verify facility rate

A Monitoring Calendar for Trust-Owned Insurance

Set it once and run it annually. Seven items, in sequence.

1. Q1 — Order in-force illustrations. Every trust-owned contract, at guaranteed and current assumptions, plus a premium solve to a target age. Carriers take weeks; start early.
2. Q1 — Confirm address of record and servicing contact with each carrier, in writing.
3. Q2 — Update the ledger. Carrier, product, chassis, insured’s date of birth, face amount, death benefit option, outstanding loan, account value, cash surrender value, remaining surrender charge, annual premium and next due date, no-lapse guarantee status, projected lapse ages at both assumption sets, and the year-over-year change in projected lapse age.
4. Q2 — Flag material adverse changes. Any contract whose projected lapse age moved more than three years earlier, whose account value fell against an unchanged premium, or whose no-lapse guarantee is not intact.
5. Q3 — Analyze the flagged contracts. One memo each, running the four-option grid below.
6. Q3 — Communicate with qualified beneficiaries on any contract where a change in course is under consideration.
7. Q4 — File the year’s review with the illustrations attached, and record decisions and their reasoning with dates.

Two mechanics worth understanding well enough to explain in one sentence each. The internal monthly charge that consumes a universal life policy’s account value is the cost of insurance, and it rises with the insured’s age — which is why an old contract can fail without anyone missing a payment. And a policy’s surrender charge schedule determines how much of the account value the carrier actually releases on cancellation in the early years, which is why cash surrender value and account value are different numbers and should never be used interchangeably in a memo.

Beginning around 2015, several carriers raised non-guaranteed cost-of-insurance rates on blocks of in-force universal life, producing extensive class litigation; the largest resolution to date is the Feller v. Transamerica Life Insurance Co. settlement approved in the Central District of California in 2018 at approximately $195 million. A COI increase generates no invoice — it simply accelerates depletion — which is why the annual illustration comparison, not the billing statement, is the detection tool.

The Four-Option Decision Grid

When a Montana trust concludes it cannot or will not continue funding a contract at the current premium, four options exist. A defensible file considers all four and explains the choice.

1. Continue funding at the required premium. Correct where the funded promise still needs to be kept and the funding source is secure. Ask the carrier to solve for the premium that carries the contract to a target age at guaranteed assumptions, not just current — that is the number the trust is actually on the hook for in the worst case.
2. Reduce the death benefit, or move to a reduced-paid-up or paid-up posture. Consistently the most overlooked option. It preserves part of the promise and eliminates the premium obligation. Where a trust was funding a $2,000,000 equalization and can sustain $1,100,000 without further contributions, that is often a better outcome for everyone than a lapse or a distressed sale.
3. Surrender for cash surrender value. Fast and simple. Also the option that produces the worst outcome where the insured’s health has declined since issue, because the carrier’s formula does not price mortality.
4. Dispose of the contract in the regulated secondary market. Available only where the policy and the insured meet market criteria — generally an insured over about 70, face amount above roughly $100,000, and a universal or convertible chassis. Where available, it produces competing offers that themselves evidence fair market value, which is useful to a fiduciary independent of whether the trust ultimately sells.

Three numbers must stay distinct in the memo. Cash surrender value is a contractual formula, net of surrender charges. Fair market value is what an informed buyer would pay, driven by the insured’s actual life expectancy, the required premium stream, and the net death benefit. Net death benefit is what the trust collects at maturity after loans. Where health has declined, fair market value can exceed surrender value by a multiple, and the divergence runs one way only, since a buyer will not pay less than surrender value when the owner could simply surrender.

Three federal provisions belong in a memo to counsel before any transaction: IRC § 2035, pulling a policy back into the gross estate on a transfer by the insured within three years of death; IRC § 101(a)(2), the transfer-for-value rule with its exceptions including transfers between grantor trusts under Rev. Rul. 2007-13; and IRC § 6050Y reporting, which generates Forms 1099-LS and 1099-SB on a reportable policy sale. Montana imposes no estate or inheritance tax and an individual income tax topping out at 5.9 percent, so the state layer on a taxable receipt is modest but real. See Montana life settlement tax treatment.

Notice to Qualified Beneficiaries Under Section 72-38-813

Montana’s UTC imposes a duty to keep qualified beneficiaries reasonably informed about the administration of the trust and of the material facts necessary for them to protect their interests. In an insurance trust that obligation has teeth, because the material facts are precisely the ones nobody volunteers.

What should be communicated, in practice:

• That the trust owns a policy at all, with its carrier, face amount, and premium. A surprising number of remainder beneficiaries do not know.
• A material adverse change in the policy’s projected viability. A lapse age that moved eight years earlier is a fact a beneficiary needs in order to protect an interest.
• A contemplated change of course — a reduction in death benefit, a surrender, or a disposition — before it happens, not in the accounting afterward.
• A funding shortfall. If the settlor has stopped making contributions and the trust cannot sustain the premium, the beneficiaries are the people who may be willing to fund it.

Beneficiaries do not hold a veto. The trust owns the contract and the trustee holds the powers. But a remainder beneficiary who first learns of a disposition from an accounting will litigate the point for years, and in Montana’s smaller communities that dispute becomes a reputational matter for the trust department well beyond the single file. Notify in advance, document the response, and proceed.

Two related Montana practice points. First, where a beneficiary is under a conservatorship or represented by an agent under a power of attorney, confirm the authority before treating a response as consent — the power to receive information is not the power to approve a transaction. The fiduciary-side view of that problem is at the Montana guardian and fiduciary guide. Second, where a current beneficiary may need long-term care, the relevant Montana figures are an individual countable resource limit of $2,000 for aged, blind, and disabled and institutional Medicaid as of 2026, a life insurance exclusion applying only where aggregate face is at or below $1,500 across all policies on the insured, and skilled nursing costs in the range of roughly $9,000 to $10,500 per month in recent surveys. A trust-owned policy is generally not the beneficiary’s countable resource; a personally owned one generally is. Confirm the standards at Montana Medicaid asset and income limits.

The Commissioner of Securities and Insurance and Title 33

Montana’s regulator has a name trust officers routinely get wrong. It is the Montana Commissioner of Securities and Insurance, Office of the State Auditor — a single elected officer holding both portfolios, based in Helena. That combination is unusual and it is also convenient: the same office that licenses insurance producers and settlement participants regulates securities activity, which matters when a proposed transaction has both characteristics. Consumer and licensing functions are summarized at Montana insurance department consumer help.

Montana’s insurance law is codified at Title 33 of the Montana Code Annotated, with viatical settlement activity regulated within that title in the life insurance provisions. We are not publishing a chapter or part number. Montana’s provisions in this area have been amended over time, and a fiduciary memo citing a superseded section is worse than one citing none. Pull the current chapter and part from the Montana Legislative Services statute portal, or call the Commissioner’s office and ask which provisions govern the transaction. The licensing picture is collected at Montana life settlement licensing.

Four verification steps belong in the trust department’s written procedure before any intermediary touches a trust-owned contract:

1. Confirm licensure of both the intermediary and the ultimate purchaser against the Commissioner’s records. An unlicensed counterparty ends the process.
2. Obtain the compensation disclosure in writing. In most jurisdictions a settlement broker owes a duty to the policy owner rather than the buyer, and the commission is disclosable. A trustee that cannot state what the intermediary was paid has an incomplete file.
3. Calendar the statutory rescission window after closing, confirming its length against Montana’s current statute rather than a neighboring state’s rule.
4. Confirm provenance and insurable interest at inception. A contract with a suspect origin raises stranger-originated life insurance questions a trust should not inherit.

One last discipline, particular to trust departments in states with small professional communities: do not accept, and do not allow anyone in the department to accept, compensation of any kind from an intermediary in connection with a trust-owned transaction. The conflict is disqualifying, it is discoverable, and in Montana’s trust and banking community it would not stay quiet for a week.

---

Frequently Asked Questions

Which Montana statutes govern a trustee’s handling of trust-owned insurance?

The Montana Uniform Trust Code at Title 72, chapter 38, adopted in 2013 — particularly § 72-38-801 on the duty to administer, § 72-38-804 on prudent administration, § 72-38-808 on powers to direct, and § 72-38-813 on informing qualified beneficiaries. Prudent investor provisions sit separately at Title 72, chapter 34. Confirm current section numbering before citing any of them in a memo.

Why does a ranch trust’s insurance policy deserve more attention than a stock position?

Because it is not a portfolio holding, it is a funded promise — equalization between heirs, a buy-sell obligation, or liquidity for debt. The question a trustee must answer is not whether the allocation is appropriate but whether the contract will be in force on the day the promise comes due. That question is answered only by an annual in-force illustration at both assumption sets.

What is the practical lesson of Rafert v. Meyer for a Montana trust department?

Trust departments lose these cases on mail, not on investment judgment. In Rafert the trustee failed to keep a current address with the carrier, notices went undelivered, and substantial policies lapsed; a broad exculpatory clause did not shield the trustee. Confirm the address of record and servicing contact with every carrier annually, in writing, and keep the confirmation.

What option do trustees most often overlook?

Reducing the death benefit or moving to a reduced-paid-up posture. It preserves part of the funded promise and eliminates the premium obligation. Where a trust was funding a $2,000,000 equalization and can sustain $1,100,000 with no further contributions, that outcome is usually better for everyone than a lapse or a distressed disposition made under time pressure.

Must qualified beneficiaries be told before a policy is sold or surrendered?

They hold no veto — the trust owns the contract — but § 72-38-813 requires keeping qualified beneficiaries reasonably informed of material facts necessary to protect their interests, and a contemplated change of course is such a fact. Notify in advance, document the response, and proceed. A beneficiary who learns of a disposition from an accounting will litigate it for years.

Who regulates life settlement transactions in Montana?

The Montana Commissioner of Securities and Insurance, Office of the State Auditor — one elected officer holding both portfolios, based in Helena. Insurance law is codified at Title 33 of the Montana Code Annotated, with viatical settlement activity regulated within it. Confirm the current chapter and part with the Commissioner’s office rather than citing a section from memory.

Related Reading

• Trustee Duty Underperforming Policy
• Audit Of A Trust Owned Policy
• What Is Cost Of Insurance
• Surrender Charge Schedule
• Montana Insurance Department Consumer Help
• Life Settlement Licensing Montana
• Life Settlement Taxes Montana
• Montana Medicaid Asset Income Limits
• Guardian Fiduciary Life Settlement Guide Montana

---

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.