Iowa Trust Association
Issue 6
May 22, 2007

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In this issue:
Legislature Adjourns - Recap of Trust Related Issues
ITA Annual Conference
Happy Holidays
Life Insurance Owned By Trusts
Trustcompare.com
ITA Newsletter Subscription

Legislature Adjourns - Recap of Trust Related Issues

Elimination of Contingent Inheritance Factors in Divorce Actions - SF 340
This Iowa Trust Association supported bill passed the Legislature and was signed by the Governor on May 21 in a public bill signing attended by members of the ITA Board of Directors. The bill overturns the 2005 Iowa Supreme Court ruling In re Marriage of Rhinehart, 704 NW2d 677. Although the bill was amended from its original form as presented by ITA, it maintains its original intent of keeping substantially all the potential inherited and gifted property from being considered by a court and prevents the discovery and privacy assaults on third parties (i.e. - parents and other relatives incident to divorce proceedings.) The final language was a negotiation between trust and estate representatives and family law attorneys. A big thank you goes to ITA Board Member Mike Nelson for all his work on this important issue.

Governor Culver signs the Rhinehart bill into law in a public bill signing ceremony as members of the Iowa Trust Association Board and look on. Present for the bill signing were bill floor leader Senator Keith Kreiman; Chuck Leibold, Bankers Trust, Des Moines; Mike Deege, Wilson,Deege,Dollar & Despotovich, West Des Moines; Mike Nelson, Iowa Savings Bank, Carroll; and Anika and Becky Nelson, Carroll.

Elimination of Reminder Notices - H.F. 641 passed the Legislature but was amended by striking a section that would have eliminated the semi-annual 60 day "reminder" letters from the clerk's office on overdue annual guardian, conservator, and court supervised trust reports. The Iowa Supreme Court introduced the legislation and felt very strongly that it should no longer be in the business of sending these reminder notices. The bill in its original form was of concern to the Iowa Trust Association but after negotiation with the Court, it was agreed that the trust reports would be due 90 days after the appointment date anniversary instead of being due on the anniversary date itself and the deadline could be extended by court order in appropriate cases. Opposition arose from legislators who felt that the court should continue to provide "reminder notices" and the proposed repeal of Iowa Code Section 633.32 died in committee.

The Iowa Bar Association did provide alternative language in SF 540 which was their 2007 probate bill that amends §§633.669, 633.670 and 633.700 making annual reports delinquent if filed more than 90 days following the end of the reporting period. This change did pass and will become effective September 30, 2007.

Probate Package - As stated above, SF 540 passed the Legislature and was supported by the Iowa Trust Association.

  • Penalty waiver for later filed disclaimers: adds new paragraph "m" to Section 421.27(1) to provide authority to waive the imposition of penalty involving an estate with a disclaimer filed beyond 9 months from the date of death if, solely as a result of the disclaimer, the personal representative is required to file an inheritance tax return, and such return is filed and any tax due is paid within the later of 9 months from the date of death or 60 days from the filing of the disclaimer.
  • Small bequests of personal property: add new subsection to §450.4 eliminating inheritance tax on tangible personal property which is distributed in kind to beneficiaries if the aggregate total value of all such personal property in the estate is < $5,000.
  • Homestead owners: add new subsection to §561.1 preserving homestead status for property owned by trusts and occupied by settler and/or settlor's spouse.
  • Beneficiary revocation for non-probate assets: add new §§598.20A and 598.20B revoking beneficiary designations to ex-spouse and relatives of ex-spouse for IRAs, life insurance policies, annuities, transfer or payable on death accounts, and stock option plans; makes disposition of these assets consistent with benefit revocation to former spouses and their relatives under probate and trust code amendments enacted in 2005.
  • Fiduciary investment powers: reinstate §633.123 establishing investment standards for conservators and estate personal representatives (§633.123 was inadvertently repealed in 2000 and needed updating in keeping with modern investment management practices).
  • Court officer oath/certification: amend §633.168 and §633.178 allowing fiduciary to accept oath of office by certification under penalty of perjury (preserving the option of executing the oath in the presence of a notary).
  • Fees for extraordinary services in probate: amend §633.199 to standardize application of this statute throughout the state.
  • Partial intestacy: amend §633.272 to provide a surviving spouse with the same share in partial intestacy as would be received in full intestacy; makes this section consistent with spousal elective share amendments enacted in 2005.
  • Guardianship/Conservatorship fees and costs: add new subsection to §633.551 authorizing courts to assess attorney and expert witness fees and other costs against the petitioner (instead of the proposed ward) if the guardianship/conservatorship petition is dismissed or denied.
  • Annual reports for conservatorships, guardianships and court-supervised trusts: amend §§633.669, 633.670 and 633.700 making annual reports delinquent if filed more than 90 days following the end of the reporting period.
  • Abatement: amend §633A.4703 to include provision for abating beneficiaries' shares of revocable trusts if surviving spouse takes elective share of decedent/settlor's estate.
  • Small estates: amend chapter 635 allowing any estate with probate assets subject to Iowa jurisdiction with total asset value < $100,000 to qualify for simplified administration. Improved features include less court involvement and allowing "reasonable" fees for personal representatives and their attorneys.

Filing Claims against Decedent's Estate: amend Code sections 633.231, 633.304A, and 633.410 to require an administrator/executor of an estate to send the Medicaid Estate Recovery Program notice by ordinary mail of the opening of an estate, and to shorten the Estate Recovery Program's timeframe for filing claims against an estate to be more consistent with the timeframe for all other creditors. This will allow for estates to be closed sooner.

Under current law, all creditors, except the Medicaid Estate Recovery Program, must file any claims against a decedent's estate within 4 months after second publication of notice to creditors, or within 1 month after service of notice by ordinary mail to the claimant, whichever is later, or their claims are barred against the estate. The Medicaid Estate Recovery Program is the only creditor that has a longer statutory period for filing claims against an estate. The Estate Recovery Program's claims must be filed within 15 months after second publication of notice to creditors, or within 2 months after service of notice on the Program by ordinary mail, whichever is later. SF 540 reduces the timeframe for the Estate Recovery Program's filing of claims to within 4 months from the second publication of notice, or within 6 months from the date of mailing of notice, whichever is later. In exchange for this shortened timeframe, the administrator or executor of the estate, upon opening the estate or admitting the will to probate, shall be required to send notice by ordinary mail to the Estate Recovery Program informing the Program of the opening of the estate and their appointment as administrator or executor. This notice is not required, under current law, to be sent to the Estate Recovery Program.

Both the Medicaid Estate Recovery Program and the Iowa State Bar Association support these changes. This change will result in an additional 8,000 to 10,000 notifications being filed each year. Estate Recovery has preliminarily suggested that responses to the filing will be provided only if a self-addressed stamped envelope accompanies the filing.

Exemption for Certificates of Deposit - SF 559 relating to cemetery and funeral merchandise and services passed this session with an important amendment offered by the Iowa Trust Association. The bill as originally written by the Insurance Commissioner amended Section 523A.203, Iowa Code 2007 to require that "The asset allocation of the trust funds shall include a diversified portfolio, AND investment and management decisions shall be made in accordance with the provisions of section 633A.4302" (Prudent Investor Rule). It is common for a trustee to conclude in some circumstances that to be consistent with 633A.4302 it is proper to hold only cash or the equivalent. This however would not be a diversified portfolio so the proposed section inserted two requirements that were incompatible and conflicting. For example if a customer found he or she had terminal cancer and simply wanted to prepay $5,000 for the cost of funeral services, it would not be prudent to do anything but place the funds in an interest bearing account that would not run the risk of principal loss yet the proposed code section would not have allowed that choice. Fortunately the Insurance Division agreed with ITA and supported an amendment to provide the exemption.

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ITA Annual Conference


Mark your calendar now for the ITA Annual Conference. This year's event will be October 11-12 at the West Des Moines Marriott. This year's event will be two days and will feature sessions on top trust issues. Exhibitors will also be on hand to display and discuss their products and services for trust departments.

Gain the knowledge you need to remain a leader in the trust profession. With changing regulations, an unsure economy and the increasing need to stay current, the Iowa Trust Association is proud to offer the 2007 Annual Conference. Look for more information coming later this summer.



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Happy Holidays


by Jim Tiedje, ITA President

Do you usually get at least one Christmas card each year that includes a letter filled with fluff about how wonderful life is in the sender's family? I've always wanted to write one that includes all of the bumps that have occurred along the road of life, but I know nobody likes to hear sad stories at Christmas. But just for fun, I thought I'd pass on the one my 86- year old mother received last Christmas. This letter is for real. It gives one a whole new perspective on what it must be like to walk in the shoes of an elder as they deal with life's daily problems. Recognizing elder care needs is something that those of us serving in the trust industry should become expert at as we deal with our clients each and every day.

Mom moved to a senior life-care facility several years back because she had the foresight to realize that the people around her in the primarily seniors condominium building were aging and the care many needed was not available in that living arrangement. Bless her, as the decision she made to move was best for her and our family. At Christmas time she received a letter from her good friend who still lives at the condominium. I include this letter with slight name changes to protect the innocent:

Dear Rose-

It is a rather sad holiday season around the building as so many things have happened and none of them good. I guess I'll give you an update floor by floor.

Third Floor
Thelma Schmidt seems to be hale and hearty most of the time. Willy Thompson has someone come in each day and clean him and the condo. He needs to be in assisted living but his niece in North Carolina who is in charge thinks everything is o.k. Phyllis and Mary, his sister-in-laws, are very frustrated. Jill Johnson has fallen several times and broken bones, but she is home now with 24 hour/day care-very expensive. Charlie Richards who has lived here a little more than a year spent the first months taking care of his wife. After she died he became ill and he has been taken to the new hospice home and he will not be back.

Balconies on units 300 and 302 had to be torn down and completely rebuilt. The city condemned them and now we have to put supports under all the balconies. They look awful but next spring when we do the 2nd floor they will look better.

Second Floor
Celebrated Marion Liklitter's 95th birthday. Millie Whistler, a retired teacher, moved into Lillie's condo. She is a welcome addition to the building. Mary Murphy will be 99 on Christmas day and has moved into the nursing home. She had fallen several times and realized that she could not count on neighbors each time she had a problem. Her son may move into her place. That has been the plan for several years. She had help 3 hours a day but needed help at night also. Harry Williams is 91 and has been in the hospital three times in the last months with falls. He wanted to stay in his condo with 24-hour a day help-Good Luck!

Pat Lane had a stroke and can talk but words don't come out as she wants them to. The saddest of all- Linda Thompson played bridge at my house until 10:30 on Nov. 16 and the next day I found her dead on the closet floor off the bathroom. What a shock. She had a pacemaker but never gave any indication about feeling bad. She never even made it to bed as she was in her robe and slippers and the bed had not been touched. Her kids have been here cleaning out the condo and it will be up for sale, too. Her funeral was Nov. 19th. Jim Foster died early spring, but Tina is staying here-thank goodness.

First Floor
Poured new concrete patios on units 108,110,112,114 with footings ready for posts next spring. Bud Larson, unit 116, died last February and his unit is still for sale. After several years of frustration and much concern the board finally found help for Bob Little. He is in the Alzheimer wing at the nursing home and when they can get into his condo to clean and fumigate, it will be up for sale. He had lost 40 pounds, was so dirty and smelled worse than anything you could ever smell. Something had to be done so Polly Carey's son-in-law, who is an attorney, told us what to do and the board did it. At least Bob is clean, warm and has 3 meals a day and people to talk with. His odor was so bad that no one could get close enough to talk with him. He had so many crazy ideas about Enron and helping the FBI among others. It would have been funny were it not so sad.

Now another shocker-Olive Missel died 4 days before Linda. She underwent heart surgery but it didn't help. Phil wants to stay here but neighbors think he cannot as he is in the start of Alzheimer's too. He could drive but Olive had to tell him how to get to where they were going. He has a daughter in New Mexico who wants him to come there to live but now Paul is opposing going. I think the medics are ready to just park the ambulance out in our driveway.

I am going to Oklahoma for Christmas. I'll be with my granddaughter and her boys. My grandson got home for Thanksgiving after 1½ years in Iraq. He will be able to get out of the Army in March. I only hope they don't send him back as he has a wife and 2 small children.

I'm sorry to write such a sad letter but thought you would be interested. Know anyone interested in a nice place to live? When the realtors come to show the condos we are going to stay out of the halls so people won't see how old all of us are.

Hope you are well and have a happy holiday season. Next year will be better for us.

P.S. We are going to advertise for people under 55 and able to play bridge and euchre. We're losing too many card players!

Yours truly,

Jenny

Hope this provided the membership with just a little humor. But too, I hope we all think about how life can become for some of our clients in their aging years. Those of us who serve elder clients know how important it is to be attentive to the changing needs. I for one am a big proponent of guiding seniors into making decisions ahead of the bad times that may follow in their life. Not always possible, but good that we familiarize ourselves with the alternatives available for eldercare services.

James R. Tiedje, CSA is Vice President and Trust Officer at Quad City Bank & Trust. He currently serves as President of the Iowa Trust Association. In 2004 he earned the designation as Certified Senior Advisor and recently was appointed to the board of directors of the Quad City Eldercare Network.



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Life Insurance Owned By Trusts

Most Trust professionals will readily admit that life insurance is not their areas of expertise. And yet, most trust departments have life insurance policies for which they are responsible - many owned under irrevocable trust agreements containing "Crummy" provisions so that the grantor can gift in funds to pay premiums and qualify the gifts as a present interest in order to use the annual gift tax exclusion.

In the past, we considered these trusts as low-maintenance accounts, requiring only that we collect the funds, issue the required notices to the beneficiaries and pay the premium once a year. We didn't charge much, if any, in fees to administer the trusts, planning instead for a profitable trust relationship to develop at the death of the insured(s).

However, the advent of new life insurance products starting in the 80's - such as universal life, variable life and all the various permutations of those products - has created new risks, and thus require more attention from the trustee. If inadequately funded, or if policy performance does not match expectations, the policy may lapse, thus eliminating the asset that otherwise might provide millions in estate-tax free benefits to the beneficiaries. A trustee who doesn't diligently monitor and manage these policies may find itself liable to beneficiaries for lost death benefits.

To protect the beneficiaries' interest in the trust, and consequently itself from possible liability, trustees should:

  • Monitor the financial strength of the insurance carrier - setting minimum standards for acceptance of trust-owned life insurance. Consider replacing policies if concerns arise regarding the carrier's ability to meet its obligations to its policyholders.
  • Obtain inforce policy illustrations from the carrier at least annually and identify potential lapse dates based on current and guaranteed expense and performance scenarios. Will the policy sustain itself to life expectancy, to endowment (age 100 in most cases, some carriers now endow at age 120). What performance and/or premium commitment is needed to sustain the policy? Is the illustrated rate of return reasonably achievable?
  • Adjust investment allocations within variable policies to ensure the investment mix is appropriate given the planned funding level. In this case, the grantor's own risk tolerance is not the criteria the trustee should use. Instead, it's more important to make allocations based on the age of the insureds and the planned funding (premiums). The trustee's concern should be that the policy has the best possible opportunity to survive until the last insured dies. If the planned premiums are not sufficient to guarantee the policy's survival, a more aggressive investment mix may be the prudent course of action to attempt to offset the lack of adequate funding.
  • Review newer versions of similar policies offered by the same and other carriers regularly to determine whether the existing policy continues to be competitive. If its internal expenses are higher than others readily available in the marketplace, a replacement may be in order. Of course, this must be carefully considered in light of the health situation and age of the insured(s). Carriers have updated their products over recent years, lowering internal costs, such that it's possible that a higher death benefit, guaranteed coverage to endowment, or reduced premium commitment might be available in spite of the fact the insured(s) are older now than they were when they purchased the existing policy. If you have a policy in trust that is more than 5 years old, it's worth making the comparison.
  • Most important of all, communicate with the insured and beneficiaries regarding policy performance, possible need for increased premiums to sustain the policy, investment allocation issues, or possible advisability of replacing the existing coverage. Document this communication and any subsequent requests by the beneficiaries to deviate from a recommended course of action.

If trustees perform this level of due diligence, they are entitled to be compensated adequately for their efforts, and a review of fee schedules for this service is in order. You'll note that some types of insurance policies require more time and effort to perform the due diligence than others. Traditional whole life and term policies require monitoring for carrier strength, timely payment of premiums required, and communication with the clients, but they don't have the flexible premium and investment allocation complexities that universal and variable life policies do.

Client perception is that the trustee has very little to do and therefore the expectation is that we should offer these services at very little fee. I've found, however, that if we communicate with the client and share the analysis, recommendations and concerns, suddenly there is a better understanding that we're getting paid for more than just sending out a notice annually.

If you're not well-versed in life insurance products and have responsibility for these in trusts, then it may be worth the cost to hire an independent 3rd party advisor who does have expertise in this area. Insurance agents may help perform this service, but are hoping to generate commissionable sales. Other services offer analysis service on a fee basis, with no expectation of sales or commissions.

By setting proper monitoring and analysis procedures in place, trustees are more likely to avoid unnecessary exposure and enhance the management of this important financial asset.

Carol Stone, CFP ™, CTFA, is a Vice President & Senior Trust Officer at West Bank in West Des Moines.



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Trustcompare.com

Trustcompare provides valuable information ranging from broad references to industry standards to specific detail of your strengths and weaknesses. From data submitted by each organization regarding assets, income, expenses and profits, Trustcompare analyzes performance from several perspectives. Trustcompare allows you to compare your trust department performance with that of similar organizations. As a member of the Iowa Trust Association, you will receive 10% off the price. Visit Trustcompare at www.trustcompare.com.

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