This Preventive Law Alert was written by: John Goodson, Colleen Manley and Christine Goodson Forakis.

Wealth Preservation and Preventive Law Special Alerts are patterned after an annual publication to all mountain climbers called "Accidents in North American Mountaineering" which writes up all mountaineering accidents describing the accident, what caused it, how it may have been prevented so that further mountain climbing catastrophes may be avoided. Wealth Preservation and Preventive Law Special Alerts are the equivalent of "Legal Accidents in North American Law" – a description of the legal catastrophe and how it may be avoided using preventive law techniques.

Sam Spaid, an intelligent and conscientious CPA agreed to be the trustee of an irrevocable trust set up for the children of his client. His client trusted him to own various life insurance policies in the trust, handle the gifts of premium each year by filing so called crummy notices and filing annual 1041 tax returns for the trust—a perfect ILIT arrangement which provided cash on death to pay death taxes and also provide funds for children's education and life insurance needs. Boy! It couldn't be a better arrangement.

However, the clients had transferred multiple life insurance policies into the trust with several life insurance policies purchased from various life insurance brokers over different periods of time. The CPA was asked to keep the policies he was given. Strangely, the premiums started to require higher premium payments because the grantor's gifts could no longer cover them. Because of the age of the policies, some became problematic. Some did not have sufficient premiums to keep the policies in force beyond a certain age. The result: The CPA was sued for negligence in managing the life insurance policies.

We recommend that the trustees bring in at least every five years, an outside, third party life insurance agent to audit the policies in the irrevocable trust to check to see if:

1. The policies need to be exchanged for policies that a newer, with a more favorable actuary agreement, with lower premium payments.
2. The policies have detrimental terms which will cause the policy to terminate prematurely.
3. The policy is with an insurance carrier that is likely to go into receivership.
4. One or more of the policies may be improved.
5. One or more of the policies may have unfavorable terms.
6. The policies are not living up to the projections promised by the selling agent.

Your personal life insurance agent will not be opposed to an audit of the policies because he will be asked to arrange for the remedial action for which he will be compensated. In addition, he will be able to evaluate and consult with you on the findings.

Remember……..TRUE GOLD DOES NOT FEAR THE REFINERS FIRE.

We help prevent legal accidents in North America!!

For additional information, please call (602) 252-5110.

www.goodsonmanleyforakis.com

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ph: 602.252.5110
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