Life Settlements for North Dakota Corporate Trust Officers: A 2026 Practice Guide

The North Dakota Uniform Trust Code at Title 59

North Dakota adopted the Uniform Trust Code in 2007, codified across chapters of Title 59 of the North Dakota Century Code. The chapters map to the UTC’s articles, and the ones that govern an insurance file are:

• Chapter 59-16 — duties and powers of the trustee, North Dakota’s enactment of UTC Article 8. The duty to administer in good faith in accordance with the trust’s terms and purposes, the duty of prudent administration, the treatment of powers held by persons other than the trustee, and the duty to keep qualified beneficiaries reasonably informed all live here.
• Chapter 59-17 — the prudent investor provisions, North Dakota’s enactment of UTC Article 9. Portfolio standard, duty to diversify with its special-circumstances exception, the duty to review trust property within a reasonable time after accepting the trusteeship, and the rules for prudent delegation.
• Chapter 59-18 — liability of trustees and rights of persons dealing with them.

Confirm current section numbering before citing anything in a memo; the chapter and section structure has been amended since adoption. Corporate fiduciary powers themselves are a banking matter and sit with the North Dakota Department of Financial Institutions, which is a separate regulator from the one governing the insurance transaction discussed later.

Two duties do the real work in an insurance file. The first is prudent administration — administering the trust as a prudent person would, exercising reasonable care, skill, and caution in light of the trust’s purposes, terms, and circumstances. The second is the duty to review trust property within a reasonable time after accepting the trusteeship and to make and implement decisions about retaining or disposing of it. That second duty is the one small departments most frequently breach without knowing it, because a successor trusteeship of a 2001 irrevocable life insurance trust arrives with a file, a policy number, and no instruction to look at anything.

On duration: North Dakota is not a perpetual-trust jurisdiction in the manner of South Dakota next door. Confirm the applicable perpetuities treatment with counsel before projecting how long a trust will hold a contract — the projected duration is a genuine input into whether continued funding at a rising cost makes sense.

Prudent Administration in a Small Trust Department

The standard does not scale down with the department. A community bank trust department is held to the same prudent-administration standard as a money-center institution, and courts have historically been unsympathetic to the argument that a fiduciary lacked the resources to do what it undertook to do.

What that means practically is that a small department has to be systematic rather than expert. It does not need an insurance specialist on staff. It needs a process that produces the same file for every contract every year, so that no individual officer’s familiarity with a particular policy is the control.

Three structural realities of North Dakota trust books shape that process:

1. The policies are usually funded promises, not portfolio holdings. Farm equalization between the child who took the operation and the ones who did not; a buy-sell obligation in a family entity agreement; liquidity for operating debt a lender required. If the contract fails, the promise fails, and the family conflict the settlor paid to prevent arrives anyway.
2. The trusts are illiquid. Land, equipment, mineral interests, and one policy. There is often no other source from which to pay a premium if the settlor stops contributing.
3. The insureds are aging into the expensive years. A universal life contract’s internal mortality charge rises with attained age, steeply after 80. Many North Dakota trust books are now carrying contracts written on insureds in their fifties in the 1990s who are now in their eighties.

The concentration itself is defensible. The duty to diversify has a special-circumstances exception, and an insurance trust is the archetypal case — the trust exists to hold the policy and diversifying would defeat the design. What is not defensible is never making the determination. A single paragraph at acceptance and refreshed annually — the trust’s purposes, the settlor’s intent that the trust hold the policy, the trustee’s evaluation of the concentration — satisfies it. “It’s an ILIT” is a description, not a determination. The general problem of holding a deteriorating contract is discussed at a trustee’s duty toward an underperforming policy.

The Annual Policy Review Most Departments Skip

Here is the whole process. It takes about ninety minutes per trust per year and it is the single highest-return control a small trust department can adopt.

Step one: request a current in-force illustration. In writing, from the carrier, at both guaranteed and current assumptions, with a premium solve to a defined target age. It is free. Carriers take two to six weeks, so start in the first quarter. A sample request approach is at requesting an in-force illustration.

Step two: confirm the address of record. Ask each carrier, in writing, to confirm the trustee’s current mailing address and servicing contact, and keep the confirmation. This is not busywork. In Rafert v. Meyer, 290 Neb. 219 (2015), a trustee of an insurance trust failed to provide the carrier with a current address, premium notices went undelivered, and substantial policies lapsed; the Nebraska Supreme Court held a broad exculpatory clause did not shield the trustee from liability for failing to perform basic administrative duties. Trust departments lose these cases on mail, not on judgment. Address failures cluster around mergers, department reorganizations, and officer changes — which is to say, exactly when they are hardest to notice.

Step three: update the schedule. One row per contract: 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 age at current assumptions, projected lapse age at guaranteed assumptions, and the change in projected lapse age from last year.

Step four: flag and analyze. Flag 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 no longer intact. Write one memo per flagged contract.

Step five: file it. Illustrations attached, decisions and reasoning recorded with dates, including the decision to take no action. A structured version of this review is described at auditing a trust-owned policy.

The value of the process is that it does not depend on anyone in the department understanding insurance deeply. It depends on ordering one document and comparing one number to last year’s.

Item	North Dakota posture (confirm before relying on it)
Trust code	UTC state — North Dakota Uniform Trust Code, N.D.C.C. Title 59 (adopted 2007)
Trustee duties and powers	N.D.C.C. ch. 59-16 (UTC Article 8)
Prudent investor	N.D.C.C. ch. 59-17 (UTC Article 9)
Trustee liability	N.D.C.C. ch. 59-18 (UTC Article 10)
Perpetuities	Not a perpetual-trust jurisdiction — confirm duration treatment with counsel
Fiduciary powers regulator	North Dakota Department of Financial Institutions (separate from the insurance regulator)
Insurance regulator	North Dakota Insurance Department (elected Commissioner), Bismarck
Insurance code	N.D. Century Code Title 26.1; confirm current settlement chapter with the Department
State estate tax	Tied to the repealed federal credit — no tax due in practice
State inheritance tax	None
State income tax	Restructured for 2023 forward; top marginal rate 2.5%, lowest among income-tax states
Medicaid individual resource limit	$3,000 — higher than the $2,000 used in most states; confirm with ND HHS
Skilled nursing cost	Roughly $12,500–$14,500/month semi-private in recent surveys — verify facility rate

Detecting a Cost-of-Insurance Increase From Documents You Already Have

Beginning around 2015, several carriers raised non-guaranteed cost-of-insurance rates on blocks of in-force universal life. The increases were substantial on some blocks and produced 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. Other carriers faced comparable actions on named product blocks.

The reason this is a trust officer’s problem rather than an insurance specialist’s is that a cost-of-insurance increase produces no bill. It does not change the premium the trust pays. It silently accelerates the depletion of the policy’s account value, and the first visible consequence is often a lapse notice years later, at which point the remedy set has narrowed to “pay a great deal more” or “lose the contract.”

Four detection signals, in order of reliability:

1. Year-over-year change in projected lapse age. The primary signal, and the reason the annual illustration cycle exists. A contract projected to carry to 99 last year and to 90 this year has experienced something material.
2. Account value falling while premiums are unchanged. Visible by laying two consecutive annual statements side by side. If the trust paid the same premium and the account value went down, internal charges rose or the credited rate fell.
3. Carrier rate-change correspondence. Carriers send notices. They look like marketing and they get discarded. Instruct whoever opens trust department mail to route anything from a life carrier to the officer, unopened decisions notwithstanding.
4. No-lapse guarantee status. Where a contract carries a guarantee, a single late or short premium can void it, generally irreversibly, converting a durable asset into a fragile one overnight.

When a material adverse change surfaces, three responses are defensible if analyzed — increase funding to restore the original projection, reduce the death benefit to a level the current funding sustains, or dispose of the contract. Taking no action is also defensible if analyzed and recorded. Taking no action because nobody looked is the one posture with no defense, and it is by far the most common.

One further point for a small department: if a policy number appears on a class list in COI litigation, the trust may itself be a class member. That is a question for counsel — but the trust officer is the person positioned to notice, and noticing is part of the job.

Directed Structures: What They Help and What They Do Not

North Dakota’s UTC addresses powers held by persons other than the trustee, and a number of North Dakota irrevocable trusts name an investment adviser, an insurance adviser, or a trust protector. Where the instrument does so, the trustee’s role in the insurance decision may be materially narrower.

Materially narrower is not zero, and four questions have to be answered from the instrument in every such file:

• Does the adviser’s granted authority reach this decision? A power over “investments” may or may not encompass surrendering or selling an insurance contract. Instruments drafted before the secondary market matured commonly do not address it, and ambiguity is not resolved in the trustee’s favor by default.
• What standard applies to the trustee’s residual conduct? Read the exculpation language alongside the statute, and know the answer before a direction arrives.
• What did the trustee receive and what did it forward? Carrier statements, rate-change notices, and lapse warnings come to the trustee. Forwarding them in writing with a retained transmittal is the cheapest control available. Holding a lapse notice while asserting a limited role does not improve with time.
• Is the adviser actually functioning? A named adviser who has not responded in three years is an empty chair, and a trustee that treats an empty chair as a shield is taking a risk no statute addresses. The correct response is to say so, in writing, to the qualified beneficiaries.

A note specific to North Dakota books: where the “adviser” is the local insurance agent who wrote the policy twenty years ago and has since retired or sold the agency, the trust has an unstaffed role and does not know it. Confirming annually that a live human occupies each named role is a five-minute task with disproportionate value.

The Decision Memo, Beneficiary Notice, and Virtual Representation

When a North Dakota trust concludes it will not continue funding a contract at the current premium, four options exist and a defensible file considers all four: continue funding at the required premium; reduce the death benefit or move to a reduced-paid-up posture; surrender for cash value; or dispose of the contract in the regulated secondary market.

Three numbers must remain distinct throughout the memo. Cash surrender value is a contractual formula — what the carrier pays to cancel, net of any remaining surrender charge. Fair market value is what an informed buyer would pay, driven by the insured’s actual life expectancy, the premium stream needed to keep the contract in force, and the net death benefit. Net death benefit is what the trust collects at maturity after loans. Where the insured’s health has declined since issue, fair market value can exceed surrender value by a multiple, and the divergence runs one way only, because a rational buyer will never pay less than surrender value when the owner could simply surrender instead. The comparison is laid out at cash surrender value versus an offer.

The memo should carry: the trust’s stated purposes and whether they are still served; the current illustration at both assumption sets with the year-over-year change; the cash surrender value net of surrender charges; whether a market indication was sought, from whom, and what it produced — including every offer and every life expectancy report commissioned, since two reports frequently disagree and retaining only the favorable one is precisely the appearance to avoid; beneficiary communications; and the trustee’s reasoning with a date.

On notice: the UTC’s duty to keep qualified beneficiaries reasonably informed of material facts necessary to protect their interests applies squarely here. A material adverse change in a policy’s viability is such a fact. A contemplated change of course should be communicated before it happens, not disclosed in an accounting afterward. Beneficiaries hold no veto — the trust owns the contract — but a remainder beneficiary who first learns of a disposition from an accounting will litigate it for years, and in North Dakota’s small communities that becomes a reputational matter for the whole department. Where minor or unborn beneficiaries are involved, virtual representation and any available nonjudicial settlement mechanism should be discussed with counsel before, not after, the transaction.

Three federal provisions belong in a memo to counsel before anything moves: IRC § 2035, which pulls 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, generating Forms 1099-LS and 1099-SB. North Dakota imposes no inheritance tax, its estate tax is tied to the repealed federal credit so no tax is due in practice, and its individual income tax tops out at 2.5 percent following the 2023 restructuring — the lowest among income-tax states. See North Dakota life settlement tax treatment and the North Dakota estate planner guide.

The North Dakota Insurance Department and Title 26.1

The regulator for the insurance side is the North Dakota Insurance Department, in Bismarck, headed by an elected Insurance Commissioner — a different agency from the Department of Financial Institutions that supervises the bank’s fiduciary powers. It licenses producers, brokers, and settlement providers doing business in the state, and its records are what a trustee checks before permitting any intermediary near a trust-owned contract. Its consumer and licensing functions are summarized at North Dakota Insurance Department consumer help.

North Dakota’s insurance law is codified at Title 26.1 of the North Dakota Century Code, and life settlement and viatical settlement activity is regulated within that title. We are not publishing a chapter or section number. The provisions have been revised over time, and a fiduciary memo citing a superseded chapter is worse than one citing none. Pull the current chapter from the North Dakota Legislative Branch’s Century Code portal, or call the Department and ask which chapter governs the transaction in question. Licensing detail is collected at North Dakota life settlement licensing.

Four verification steps for the department’s written procedure: confirm the North Dakota license of both the intermediary and the ultimate purchaser against Department records; obtain the compensation disclosure in writing, since a settlement broker generally owes a duty to the policy owner rather than the buyer; calendar the statutory rescission window that runs after closing, confirming its length against North Dakota’s current statute; and confirm the contract’s provenance and insurable interest at inception, so the trust does not inherit a stranger-originated policy problem.

Finally, where a current beneficiary may need long-term care — an increasingly common posture in North Dakota trust books — two figures matter and both differ from the national default. North Dakota’s individual countable resource limit for aged, blind, and disabled and institutional Medicaid has been $3,000, not the $2,000 most states use, and life insurance is excluded only where aggregate face value across all policies on the insured is at or below $1,500, above which the entire cash surrender value counts. Skilled nursing has run roughly $12,500 to $14,500 per month in recent surveys. A trust-owned policy is generally not the beneficiary’s countable resource; a personally owned one generally is, and that distinction should never be blurred in a distribution memo. Confirm current standards at North Dakota Medicaid asset and income limits, and route special needs trust questions to specialist counsel.

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Frequently Asked Questions

Which North Dakota chapters govern a trustee’s handling of trust-owned insurance?

The North Dakota Uniform Trust Code at Title 59, adopted in 2007 — chapter 59-16 for trustee duties and powers including prudent administration and the duty to inform qualified beneficiaries, chapter 59-17 for prudent investor provisions, and chapter 59-18 for trustee liability. Confirm current section numbering before citing any of them, since the structure has been amended since adoption.

Does a small community bank trust department face a lower standard?

No. The prudent administration standard does not scale down with the department, and courts have historically been unsympathetic to arguments that a fiduciary lacked resources to do what it undertook to do. A small department does not need an insurance specialist. It needs a process that produces the same file for every contract every year, so no officer’s personal familiarity is the control.

How long does the annual policy review actually take?

About ninety minutes per trust per year: request a current in-force illustration at both assumption sets with a premium solve; confirm the carrier’s address of record in writing; update one row on a schedule; flag any contract whose projected lapse age moved more than three years earlier; and file the result with decisions and reasoning dated. That is the entire control.

How would we know a carrier raised cost-of-insurance rates?

Four signals: a year-over-year worsening in the projected lapse age from consecutive in-force illustrations; account value falling while premiums are unchanged, visible on two consecutive statements; carrier rate-change correspondence, which looks like marketing and gets discarded; and a no-lapse guarantee that is no longer intact. A COI increase never produces a bill — that is precisely why it goes undetected.

Is North Dakota’s Medicaid resource limit $2,000?

No. North Dakota’s individual countable resource limit for aged, blind, and disabled and institutional Medicaid has been $3,000, higher than most states. Confirm with ND HHS. Separately, life insurance is excluded only where aggregate face value across all policies on the insured is at or below $1,500, above which the entire cash surrender value becomes countable.

What if the named insurance adviser on a trust has retired or sold the agency?

Then the trust has an unstaffed role and probably does not know it. A named adviser who has not responded in three years is an empty chair, and treating an empty chair as a shield is a risk no statute addresses. Confirm annually that a live person occupies each named role, and where one does not, say so in writing to the qualified beneficiaries.

Related Reading

• Trustee Duty Underperforming Policy
• Audit Of A Trust Owned Policy
• Request In Force Illustration Script
• Cash Surrender Value Vs Offer
• North Dakota Insurance Department Consumer Help
• Life Settlement Licensing North Dakota
• Life Settlement Taxes North Dakota
• North Dakota Medicaid Asset Income Limits
• Estate Planner Life Settlement Guide North Dakota

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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.