Florida has enacted a new statute that virtually eliminates trustee liability with respect to (1) insurable interest issues related to the ownership of life insurance and (2) investing in life insurance policies.
Under the Nonapplication of Prudent Investor Rule, a trustee will have no duty to ensure that there exists an insurable interest in a life insurance policy if:
- 1. the trust owns insurance on the life a “qualified person” which is a new statutory concept defined as the “insured or a proposed insured, or the spouse of that person, who has provided the trustee with funds used to acquire or pay premiums with respect to a policy of insurance” on the life of any of those individuals;
- 2. the trust agreement does not opt out of the application of statute;
- 3. the insurance policy is not purchased from a trustee affiliate nor will the trustee or any trustee affiliate receive commissions related to the policy purchase unless trustee investment duties were delegated to another person;
- 4. the trustees did not know that the beneficiaries lacked an insurable interest when the policy was purchased; and
- 5. the trustee did not have knowledge of a STOLI (stranger-owned life insurance) arrangement.
Moreover, under the new statute, a trustee has no duty to determine whether the life insurance policy is a proper investment, to diversify with respect to any policy, to investigate the financial strength of the issuing company, to decide whether to exercise any policy options nor to examine the financial and physical health of the insured if the first three criteria above apply and either:
- 1. the trust agreement affirmatively opts in to the application of the statute or
- 2. the trustee gives notice to the trust beneficiaries of the trustee’s intention to opt in to the statute, and no beneficiary objects within 30 days of receipt of that notice or any written objections are withdrawn.
The statute is effective July 1, 2010, as of which date Florida joins Delaware, West Virginia, North Dakota, Wyoming, South Carolina, Pennsylvania, and, to a limited extent Alabama in providing such trustee protections.