SDTC administers insurance trusts and LLCs with more than $14 billion of insurance death benefits.
SDTC provides trust and LLC administration services for fixed, variable, and private placement life insurance policies.
As a result of South Dakota’s great trust, insurance, asset protection, low state premium tax and lending laws, combined with SDTC’s experience, SDTC is ideally positioned to serve as trustee for numerous insurance trusts.
Newly drafted insurance trusts utilizing South Dakota laws are generally directed. SDTC acts as Administrative Trustee and takes direction from an Investment and a Distribution Committee made up of family members and their advisors. The Distribution Committee directs the Administrative Trustee to make trust distributions, and the Investment Committee directs the Administrative Trustee on how to invest the trust (i.e., purchase one or more insurance policies, how to invest the death benefits, etc.).
If there is an existing ILIT in another state that changes situs to South Dakota, these trusts will generally be delegated versus directed, and are therefore typically reformed to directed either judicially or non-judicially, before insurance is purchased. Alternatively, the policy may be decanted from an older trust to a newer directed trust.
The low South Dakota premium tax would generally apply whether or not an irrevocable trust, revocable trust with a separate tax ID number or LLC is utilized. If there are trusts in another state and someone wants to take advantage of the lower South Dakota Premium tax, generally, a South Dakota LLC is established with SDTC as co-managing member (i.e. SDTC) to purchase insurance within the SD LLC and allocate the units to the non- South Dakota trusts.
SDTC recognizes that most advisors and corporate trustees do not want to act as trustee of an Irrevocable Life Insurance Trust (ILIT) until the proceeds are actually paid, leaving the family to cope with the burdens of the unfunded insurance trust’s administration. SDTC will act as trustee during the insured’s lifetime and after the insured’s death. There are two levels of trust administration associated with ILITS: the first provides for the insured’s lifetime and the second begins with the insured’s death.
Administration Duties during Insured’s Lifetime: [Please note: Investment Committee directs SDTC regarding these duties when a “directed” trust is involved.]
- Creation of trust account
- Transfer of policies into the trust
- Purchase of new policies
- Tax reporting
- Preparation and transmittal of beneficiary Crummey notices
- Extensive monitoring of insurance companies and policies
In response to evolving case law and litigation regarding trustee responsibilities with non-directed trusts, SDTC can review an insurance company’s financial stability as follows:
- Use of rating services like Moody’s, Standard & Poor, Duff & Phelps, and Weiss
- Independent analysis of each company’s dividend history, expense ratio & portfolio (i.e., asset allocation, asset & bond quality, non-performing assets)
- Periodic review of policy appropriateness for trust objectives
- Enforce ledger update
- SDTC can provide services to review the status of individual policies via in-force ledger updates, etc.