Is Life Insurance a Suitable Investment? Trustees No Longer Required to Monitor Suitability

May 19, 2014

Under existing Wisconsin law, the trustee of an irrevocable trust that owns life insurance contracts is required to monitor the contracts to determine whether they are suitable investments for the trust and, if necessary, to take steps to prevent the lapse of the insurance coverage. These requirements apply whether or not the trustee was involved in the decision to purchase the insurance contract as an investment of the trust and often involve a cost to the trust.

As of July 1, 2014, a new Wisconsin law provides the trustee of an irrevocable trust that owns life insurance contracts will no longer be required to monitor the contracts if (1) the contracts are acquired on or after July 1st or (2) the trustee provides notice to trust beneficiaries that the trustee elects to be governed by the new law. In these circumstances, the trustee is not liable for any loss resulting from the failure to investigate the strength of the contract or company; exercise any contract option, right, or privilege; diversify the contract relative to other contracts or assets; monitor the health or financial condition of the insured; or prevent the contract’s lapse. As a result of this change, the beneficiaries of an irrevocable trust that owns life insurance contracts should determine who will monitor the ongoing suitability of the trust’s insurance contracts.

If you have questions about how this new law affects you or your trust, please contact any of the attorneys in the Trusts & Estate Practice Group at Ruder Ware.

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This document provides information of a general nature regarding legislative or other legal developments, and is based on the state of the law at the time of the original publication of this article. None of the information contained herein is intended as legal advice or opinion relative to specific matters, facts, situations, or issues, and additional facts and information or future developments may affect the subjects addressed. You should not act upon the information in this document without discussing your specific situation with legal counsel.

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