A San Francisco attorney (former president of the Insurance Section of the ATLA) contacted us in order to review a series of insurance transactions implemented by his client at the recommendation of an insurance agent. Specifically, a new $4 million second-to-die policy had been ‘piggybacked’ on an existing $7.8 million policy. The agent represented that the new policy would not require any additional out-of-pocket payments. A total of $1.25 million in premiums had been paid to fund the original policy. The attorney contacted us because his client, the trustee of the irrevocable trust [1] that owned the policies, received lapse notices showing no value remaining in either policy.
Our firm reviewed the documents surrounding the transaction, prepared a written analysis regarding the economics of the agent’s recommendations, and assisted in policy rescue negotiations with the carrier. On November 16, 1999, all parties agreed to a settlement that includes the following provisions:
- The $4 million contract was surrendered;
- $7.8 million contract was reinstated and all loan transactions were reversed;
- At the current rate of interest crediting, no additional premiums will be due on the $7.8 million policy.
This outcome represents a multimillion-dollar value to the contract beneficiaries as well as a lifetime value of $1 million plus to the insureds. Needless to say, the settlement was also welcomed by the trustee.