Selling $4M TOLI Policies Helps Trustee Preserve Family Harmony
January 31, 2019
For life settlement brokers, negotiating the sale of a trust-owned life insurance policy is normally a routine transaction. While the mechanics of interfacing with the financial advisor, the seller, and the funders (prospective buyers) may be business as usual for life settlement brokers who negotiate such transactions, there are occasions when delicate family situations require an extraordinary level of sensitivity to achieve a successful outcome.
In this transaction, the eldest son is the trustee for his 86 year old mother’s estate. He and his two siblings were the beneficiaries of a $2M single life VUL policy, and a $2M SUL policy, both owned by the Trust.
As trustee, the son had a fiduciary duty to manage the estate’s financial assets, facilitate periodic reviews for the policies, and make annual premium payments – all of which required substantial time and continuously gaining nods of approval from his siblings. At times, these interactions with his siblings became onerous and he was growing tired of the process.
Following a financial review, the trustee and his advisor concluded that the policies were no longer needed for tax planning. It made little economic sense to continue paying premiums of $93,146 (4.6% per year) for the $2 million VUL policy, and $45,224 (2.2% per year) for the $2 million SUL policy.
In addition to being the most financially prudent decision, the trustee believed that selling the policies would relieve him of the administrative burdens and thereby help preserve family harmony. Upon receiving his mother’s approval, they proceeded to sell the policies in two separate life settlement transactions.
An Unexpected Challenge
The bidding process was highly successful. The $2 mil. VUL policy resulted in seven cash offers with the highest bid at $554,000. The $2 mil. SUL policy had 15 cash offers which peaked at $889,000.
The trustee and his family gladly accepted the two cash offers (a combined cash settlement of $1.4 million), and the transaction entered the closing phase.
During the 15-day rescission period, the usual paperwork was issued to the seller, including a request for the designated contact person who would monitor the health and life expectancy (LE) of the insured. However, the LE paperwork was sent erroneously to the trustee’s mother instead of to him. Although his mother supported the life settlement, receiving a letter that involved facing her own mortality and longevity was upsetting to her. Her emotional angst over the paperwork jeopardized the closing process.
Asset Life Settlement recognized the delicacy of the matter and our staff stepped in to help. We met with the funder/buyer who had issued the letter to discuss a sensitive way to appease the insured. We agreed a letter of apology from the policy buyer to the trustee’s mother would be appropriate. We also took time to allay the concerns of the trustee who was not aware that there would continue to be a minimal amount of administrative paperwork at periodic intervals to check on the health status of the insured. But in the end, the trustee agreed that the life settlement was the best solution all around, and that it would help preserve family relationships.
This case illustrates the importance of working with a life settlement broker who is sensitive to each family’s situation, and who is willing to go the extra mile to ensure they “sell with confidence.” If you have a potential case you would like to discuss, call us at 1-855-768-9085.