26 October 2005

Life Insurance Trusts Ruled Void.

A federal trial court in Maryland ruled earlier this year in the Chawla case that life insurance trusts were void, because the trust is better off if the insured dies than it is if the insured lives. If this ruling is allowed to stand, it would invalidate one of the most common estate planning methods of high net worth individuals in existence, which has been used as part of standard estate planning practice for, at least, four decades. One also has to wonder why an insurance company, which relies on life insurance trust business for a large share of lurcrative whole life product market (most whole life by value is bought by people over the age of sixty-five for estate planning purposes), would even raise an issue so widely believed to have been a settled point of law. Indeed, the mere fact that a single trial court has ruled in this way leaves open the question of whether the same issue could be raised successfully in other jurisidctions, casting a pall of uncertainty over life insurance and estate planning nationwide.

In other estate planning news, both Connecticut and Vermont are discussing abandoning their outdated and costly probate systems for the inexpensive and efficient system that addresses the modern realities of multiple marriages and non-probate transfers used in Colorado (the Uniform Probate Code).

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