With the Biden proposals comes the potential for tax increases at the income, capital gains and estate tax level. Life insurance is becoming interesting again to a lot of families looking to expand on their functions of income replacement, business succession and tax planning. Using trusts and other structures to amplify their effectiveness is shifting back into focus. The ongoing maintenance of these structures is usually underestimated and the resulting liability could be a nasty surprise for many families. To help understand the emerging tax environment and the best practices around life insurance and the under-appreciated task (and risk) of administering life insurance trusts, I spoke to ANDREAS STUERMANN.
Born and raised in Bremen, Germany, Andreas moved to California in 1987. He began his financial services career with John Hancock in the San Francisco Bay Area as their technical resource in sophisticated life insurance and benefit transactions. In 1998, he joined Winged Keel in New York City for which he managed design, implementation, and administration services of substantial life insurance, non-qualified benefit, and wealth transfer programs. In 2003, he founded Stuermann Consulting, Inc., an independent insurance and benefit advisory firm.
What is the function of life insurance?
Replace income, Fund Business Succession, Income Capital Gains, Estate taxes, Insurance as an Investment? Asset Protection? Executive compensation?
What is the benefit of having insurance owned in a trust?
Proceeds pay outside of the insured’s estate, asset protection, structure around distributions, liquidity at major life transition, others . . .
Many individuals are tasked with acting as trustees of these trusts- why might that be a bad idea?
Are Individuals qualified to understand the legal requirements of a trustee and the vagaries of the insurance industry?
Making sure all Crummey letters are sent and the trust complies with all other formalities-
Making sure all timely premium payments are made-
Making sure the policy continues to make sense for the trusts’ beneficiaries and is performing-
What is the best practice for reviewing insurance policies?
Confirm who actually owns the policies and whom the beneficiaries are- you’d be surprised at the mistakes!
Where does the policy stand? Is it funded? Are there any loans against it?
Are there useful in-force projections to analyze the policy? Has it been stress tested?
How is the performance of the Insurance Company? Any issues with capitalization to be considered?
How often should policies be reviewed? Every year? Every few years?
How does the trustee make sure the approach around insurance is handled in a consultative manner (as opposed to being designed to generate another sale?)