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Financial Planning

Financial Planning is an all-encompassing process of regularly assessing ones assets and resources and balancing them against estimated future financial needs. Our CERTIFIED FINANCIAL PLANNERS™ provide advice and guidance on a wide range of topics to help clients create a comprehensive roadmap that will help them achieve their financial goals.

Much like retirement planning, a good financial plan can vary greatly from client to client. To some it means insuring a steady stream of income during retirement. For others it’s a college fund for dependent children, a plan to help make career-related decisions, or a variety of other life events that you need a good plan to help execute.

Financial planning helps our clients get the most out of their assets, and it’s never too early (or late) to start planning. If you do not have a solid financial plan, the right time to start one is now.

Here are a few life events where you need a good financial plan:

  • Saving for retirement
  • Rolling over a pension or IRA
  • Inheritance or other financial windfall
  • Preparing for marriage or divorce
  • Planning for the birth or adoption of a child
  • Facing a potential financial crisis, such as a medical illness or job loss
  • Caring for elderly parents or disabled children
  • College education funding
  • Buying or selling a business
  • Sale of real estate
  • Charitable giving

If you have not examined your life insurance policies, disability policies, or other insurance policies lately, they may no longer meet your needs. Your financial circumstances may have changed – perhaps you are making more money, you have children, the children have grown, you are nearing retirement, or you have more financial obligations. You need to assess your insurance needs in terms of a broader approach called risk management. Insurance should be used to cover risks to your person, your property, and to your assets that you cannot otherwise avoid or reduce.

Irrevocable Life Insurance Trusts (ILITs) were designed as estate planning tools to minimize income and estate taxes. When done properly, the life insurance proceeds are income tax-free and estate tax-free for the trust beneficiaries, without the need to liquidate non-liquid assets of the estate. However, that does not mean there can’t be problems. Five to ten percent of the insurance policies within ILITs are in danger of lapsing in the near term (less than three years) and another 20% may lapse in three to seven years. Less than 30% of the trustees polled had reviewed trust-owned life insurance policies within the past five years.1

Charter Trust understands that this combination of the corporate fiduciary world and life insurance brings a tremendous amount of potential liability to the fiduciary. ILIT management necessitates proper attention to potential risks. As the statistic above references, many fiduciaries limit their activities to paying annual premiums and sending out notification of withdrawal rights (Crummey letters) to beneficiaries. However, this common approach is contradictory to the standards outlined in the Uniform Prudent Investor Act (UPIA). As UPIA standards require that trustees become increasingly proactive, the responsibilities of a fiduciary now extend well beyond paying premiums and sending Crummey notices.

Trustees are typically responsible for:

  • Conducting a comprehensive review of the ILIT
  • Performing a pre-acceptance and annual review of the insurance carrier
  • Ongoing performance reviews of the life insurance policy
  • Managing annual contributions
  • Documenting reviews
  • Controlling and accounting for investment expenses
  • Documenting administrative functions (Crummey notices, premium payments)
  • Preparing Trust income tax returns
  • Knowing the standards, laws and trust provisions

The UPIA and regulations set out by the OCC require formal procedures for Trustees. The task can be complicated by the complexities of many current life insurance policies. As opposed to life insurance policies in the past, many current policies today are tied to varying interest rates and even stock market performance. Many of these policies could be subject to mismanagement, or more importantly, no management.

Questions for a Trustee to ponder:

  • When was the last time an in-force illustration was secured and reviewed?
  • Is the policy still adequate?
  • Is the policy underfunded and likely unable to meet the trust’s needs?
  • Is the policy overfunded so that premium payments could be reduced or eliminated?
  • Are there policy loans?
  • How have interest rates changed since the policy was originally issued?
  • Is the original agent still available? Is the policy being serviced by any agent?
  • How is the financial strength of the insurance carrier? Has it changed?

Because the ILIT is so important to the family of the insured, the status of the life insurance policy must be communicated effectively to the interested parties.

Charter Trust Company provides comprehensive ILIT administration, life insurance policy management as well as policy review. We have a staff committed to ILIT management, oversight, analysis, and support. Our staff includes wealth advisors, CFP® professionals, life insurance experts, and wealth administration experts. Together we offer a solution to the problems and potential problems, which can arise with Irrevocable Life Insurance Trusts.

1Richard L. Harris and Russ Alan Prince, “The Problem with Trusts Owning Life Insurance,” Trusts and Estates, May 2003, p. 62