Sep 23

Historically, life insurance policies were relatively simple investments that could be easily managed without any specialized knowledge of modern life insurance complexities.  However, in today’s world, life insurance products have become increasingly more sophisticated.  If you are the trustee of an Irrevocable Life Insurance Trust (or any other trust that owns a life insurance contract), you should consider taking advantage of Florida’s new statutory protections for trustees managing life insurance contracts.

Effective on July 1, 2010, the new protections can be utilized to insulate a trustee from liabilities that may arise in connection with the trustee’s duty to comply with the prudent investor rule with respect to the life insurance contracts and determine whether a policy was procured in violation of Florida’s insurable interest requirements.

For example, if the statutory protections apply, the trustee has no duty to:

  • Determine whether the trust has an insurable interest in the life of the insured;
  • Determine whether a contract for insurance is (or remains) an appropriate investment;
  • Investigate the financial strength of the life insurance company;
  • Determine whether to exercise policy options;
  • Diversify with respect to life insurance; or
  • Investigate the health or financial condition of the insured.

The protections that may be afforded to trustees managing life insurance contracts are not automatic.  Unless F.S. §736.0902 is specifically invoked in the trust, the statutory protections are not applicable to protect the trustee.  Fortunately, the trustee may invoke the statutory protection of F.S. 736.0902 by providing written notice to all qualified beneficiaries.  The notice must be provided per F.S. §736.0109 and the beneficiaries will be given thirty days to object.