Trust BCLP

Trust BCLP

Life Insurance

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A Case of Buyer’s Remorse or Breach of Fiduciary Duty?

In French v. Wachovia Bank, N.A., 2011 WL 2649985 (E.D. Wis., July 6, 2011), the court issued an order granting Wachovia Bank’s (“Wachovia”) motion for summary judgment in an action by the beneficiaries of the French Trusts for breach of fiduciary duty. Wachovia was the successor trustee of the French Trusts that owned two whole life policies as well as significant other assets having a total value of about $30 million. Wachovia was appointed as such successor trustee in conjunction with its review of the policies and its recommendation to replace the whole life policies with a no-lapse John Hancock policy. The settlor (“French”) had his attorneys review the recommendation and provide him an analysis of the proposed exchange.

After an extensive year-long analysis of the advantages and disadvantages of the proposed policy exchange, including multiple detailed memoranda from his attorneys and discussions of the transaction with his attorneys and

Investor Had No Insurable Interest in STOLI

Nyet, we don’t mean the vodka. In the life insurance world, STOLI stands for “stranger owned life insurance.”

In Pruco Life Ins. Co. v. Brasner, Case No. 10-80804,U.S. Dist. Ct S.D. Florida, November 14, 2011, the court once again found that an investor or stranger who owned a life insurance policy lacked an insurable interest. In this case, Arlene Berger was interested in obtaining the lucrative cash payment that was the pot at the end of the rainbow of this life insurance arrangement, but with a net worth of under $1 Million, she really had no need for the life insurance. Ms. Berger learned of the life insurance arrangement from a free seminar she and her husband had attended, and she was referred to Mr. Brasner, who was a life insurance agent for Pruco.

Ms. Berger, through the help of Mr. Brasner, applied for the life insurance, but had no

Improperly Cancelled Life Insurance Policy Leads to Taxable Income

In Estate of Feder, Yulia Feder learned the hard way that failure to properly cancel a life insurance policy can lead to income tax consequences.

In a recent Tax Court decision, Estate of Feder, T.C. No. 1628-10, T.C. Memo. 2012-10, January 10, 2012, the Tax Court had no trouble ruling that the taxpayer, Yulia Feder, received taxable income on the lapse of her old Northwestern Mutual life insurance policy even though she did not receive any cash from the policy at that time.

In this case, Feder had paid $73 per quarter in premiums on her $50,000 life insurance policy until November of 1987. In January of 1988, Feder purportedly wrote a letter to Northwestern Mutual requesting that her policy be cancelled, and providing a new address to which all future correspondence should be sent. Feder testified that she had not received any further correspondence from Northwestern Mutual after making that request and thought

The Elusive Insurable Interest Requirement

Life insurance is an important estate planning tool that many people buy to provide financial support for loved ones and to ensure that their estate will be able to pay estate taxes when they pass away.

The “Insurable Interest Requirement”. In the U.S., a life insurance policy can only be acquired by a person (or entity) who has an “insurable interest” in the life of the insured. This means the person who acquires the policy must have some reason to wish for the insured’s continued life. This requirement for an insurable interest originated in England in the 18th century when Parliament enacted a law requiring an insurable interest to stop the popular practice of wealth investors purchasing life insurance policies on elderly persons and persons accused of capital crimes so they could reap the profits when the person died (by natural or unnatural causes). This law remains in effect in