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 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.