With grantors living longer, the trustee’s tenure has also increased.  It’s worth taking a look at the responsibilities of the trustee today and how stricter compliance and administrative needs have led some trustees to reevaluate how they carry out their responsibilities.

Choosing a Trustee

There are two skills required to administer an ILIT; judgment and administrative duties.  

Grantors primarily select ILIT trustees for their confidence in executing trust documents and their prudent ability to manage change, including when the grantor is gone.  The trustee’s rapport with the grantor and/or beneficiaries—a skill which cannot be taught or bought—can last a lifetime, and that may be how long the trustee needs to be on the job.

An important, yet overlooked, secondary skill is an administrative capability to document the present interest of the beneficiaries in the annual gift, if such an estate planning strategy is being used.  The proper administration of this Crummey process determines whether the decedent’s estate will have a tax liability from the gifts transferred from his or her estate to a trust.  This administration includes creating proper Crummey notices, recording the acknowledgement of these notices, ensuring funding for and making payments to life insurance policies, communicating what has and has not yet been done to other parties of the trust (e.g. attorneys, trustees/co-trustees, grantors, financial advisors) and maintaining records over the life of the trust (perhaps  four decades). The attentiveness to annual persistency and meticulousness of the trustee makes the difference in whether this wealth will be transferred in a compliant manner.  With grantors living longer, it is this long-term administrative responsibility that is raising concerns.

Rising Tide of Compliance

The issue of whether a trust could withstand the look-back scrutiny of an IRS audit, a legal challenge based on the Uniform Prudent Investor Act (UPIA), or other compliance tests is the acute issue on the mind of the trustee—and this issue will be tested at the end of the trusteeship.  Trustees are seeking a better solution to satisfy their own liability concerns and to more confidently ensure the good standing of the trust.

The trustee of an irrevocable life insurance trust (ILIT) should be able to document that it met annual gift tax exclusions every year over the life of the trust.  Related annual tasks include, but are not limited to, the following:

• Reminders to grantors to fund the ILIT so trust owned life insurance (TOLI) premiums can be paid on time
• Generating and sending Crummey notices to beneficiaries
• Recording gift acknowledgments or acceptance 
• Reminding bill payers to pay premiums when due and recording payment information
• Periodically reviewing TOLI policies using an objective measure and recording findings
• Annual gift reporting and Long-term record-keeping

For a typical trust to ideally include all parties in either original or “carbon copied” communications related to the Crummey process, the number of unique annual notices (assuming no reminders are required) could quickly number approximately twenty unique communications per year.  There is a cost to generating each of these communications.

The content and procedures of these administrative tasks are often performed by an attorney at the time of the inception of the trust.  Thereafter, however, the repetitive administrative tasks to satisfy the Crummey process are often performed by an advisor’s back office such as a paralegal, legal assistant, or legal office specialist. When the advisor retires and is without staff assistance or otherwise has diminished office facilities, the burden of performing these administrative duties can be more pronounced.  One solution could be to transfer the client to another, younger, advisor.  But if the advisor also serves the role of trustee—chosen for his/her judgment and rapport by the grantor, relinquishing the responsibilities as trustee is tantamount to not satisfying the full trusteeship.  And this problem is more pronounced when one considers the trustee/attorney’s services are needed to serve the grantor’s wishes when the trust is being evaluated for compliance and assets are being distributed according to testamentary documents after the grantor dies.  Longer trusteeships are forcing a baton-type transfer of ILIT administration responsibilities.  And over forty years, this could mean multiple personal interpretations, types of record keeping, and records storage of how a single ILIT will try to comply with the Crummey process.

Making matter worse, is that trust administration duties are sometimes offered as an advisor accommodation for other work performed or have minimal future markups.  Often, profitable professional services were performed to formerly important clients, yet the administrative duties for the trust remain.  This places a strain on both the willingness of the professional to continue to administer that former client’s ILIT.  The conflict of short-term benefit for long-term accommodations is problematic and could place the ILIT’s compliance in jeopardy.

Enabling Trustees Longer-Term

Trustees and others are learning that instead of performing the Crummey administrative tasks themselves, they should supervise this administration.  By doing so, their responsibilities are realigned to the leverage their judgment ability—the primary reason they were chosen to be the trustee in the first place—and minimize the administrative burden.  As people live longer, trusts live longer, and trusteeships become longer tenured affairs.  Outsourcing the ILIT’s administrative burdens can empower trustees to be more effective with fewer headaches much later in life.  The trustee is empowered to satisfy the commitment made to the grantor by being able to serve longer.

CrummeyService software administers ILIT notifications to all parties of a trust, maintains records in perpetuity (or until the dissolution of the trust), and does it more efficiently than many trustees are able to do by themselves. The automated administrative tasks are monitored in an easy to read online format, providing the trustee with an organized inventory of all trust-related actions taken during the year and historically.

Data Security

There are many low cost data vaults available for record storage. Unlike these storage only solutions, CrummeyService has incorporated a free data vault into the same web-based software that automates the entire ILIT administrative process.  

Access to all information is available to trustees and selected information is accessible by the other parties of an ILIT on a 24/7 basis from an internet browser.  The professional or nonprofessional trustee’s concern of failing to satisfy funding requirements is largely mitigated by automated reminders, compliant notices, and better Crummey process management of key milestones.  And knowing all actions are documented and easily accessible makes for a more compliant trust.

CrummeyService doubles as a disaster recovery solution for ILIT records. The trust’s records are no longer reliant on one individual’s personal security system over a forty year period nor where they have stored the records of the trust for forty years.  Should the trustee been unable to perform his/her responsibilities over the approximately forty year life of the trust, anyone may continue the ILIT administration, knowing all records are in a single, secure place and always used a single compliant standard.

Organized For Forty Year ILIT Conversations

At the same time the Crummey process is important because of its impact on estate tax liability, it is equally predictable over the long term.  Once the expectations of a trust are set and met for one year, they usually remain that way for years.  This generally repetitive Crummey process is an opportunity for the advisor to demonstrate solid annual performance to the client and establish a solid relationship that could be difficult to break.

Active oversight of the trust over the long trusteeship can help ensure the goals of the trust are met.  One thing is certain, economic conditions will change and as such Insurance carrier ratings and their crediting rates will also change negatively impacting the goals of the trust.  A periodic review can help the trustee plan ahead of expiring conversion rights, lapsing term premiums and/or premium increases.

CrummeyService allows the trustee to set reminders, record reviews and store original sales illustrations.  Keeping all of your client’s documents organized provides continuity over time and demonstrates that the advisor is organized to handle this forty year project.

When insurance is a part of a larger wealth transfer strategy, clients are willing to listen to this higher level conversation.  It is an opportunity for the advisor to demonstrate leadership.  Over a likely forty year life of an ILIT, when changes do occur in a family—to all parties of the trust, the advisor managing the Crummey process is already best positioned to develop those changes into new sales opportunities. In the same way the ILIT is often for the benefit of the grantor’s family as an intergenerational financial unit, the advisor managing the ILIT is best positioned to service the needs of all members of that financial unit.

Conclusion

The inclusion of an independent management system, in this case CrummeyService, is in alignment with legal trends to help ensure conventions of prudence and process are adhered to by trustees.  Because of these and other increasingly encroaching considerations, leading law firms, investment advisors, and nonprofessional trustees have become early adopters of CrummeyService.

At a recent golf outing, a trust company executive and CrummeyService.com user commented:  “We were hesitant to take on more ILIT administration, with these administrative headaches removed, standards automated, and our cost exposure fixed, we’re actively seeking more ILIT business.

Professional trustees claim the service has freed up new billable time, allowed more focus on their core business, and raised margins.  And with the increasing compliance demands placed on trustees, such innovations may be the answer to keeping the trustin the trust process.

For additional information about CrummeyService.com, please contact Randall Peck at 888-648-ILIT (4548) or info@crummeyservice.com

Randall W. Peck is the founder of CrummeyService.com, LLC