§ 2(a) Life insurance "Policy Directives" need to be created and made part of the trust. Policy directives include the purpose, terms, directions, distribution requirements, investment goals, and reasons for including a life insurance policy(s) in the trust.

§ 2(c) 1 General Economic Conditions. A statement on the current climate of the life insurance industry in general, the financial ratings of the underlying insurance carrier, and the ratings of the individual insurance product utilized in the trust (product ratings are available via a CPE Report, provided by Bardes Consulting, Inc.)

§ 2(c) 2 Effects on inflation or deflation. Life insurance death benefit amounts, as well as other policy values, are incident to inflation or deflation. The inflation statement should read, if applicable, "The current Death Benefit will under inflation become less valuable over time. On regular set intervals, the appropriateness of available death benefits may need to be adjusted. Deflation has the benefit of increasing the beneficiary's value proposition." To the extent a life policy has an inflation adjustment rider, this statement would be adjusted accordingly.

§ 2(c) 3 Tax consequences. On a frequency no greater than annually, the policy cost basis, the gain, the taxable gain upon surrender, surrender value (liquidity,) mortality and other policy expenses, investment gain, the Linton Yield (mortality adjusted ROR), the ROR (IRR), and the MEC/DEFRA/TEFRA/7702, values must be calculated and reported.

§ 2(c) 4 Role of Each Investment. This is included in the Policy Directives (see 2a.)

§ 2(c) 5 Expected Total Return. This is reported above, under 2(c) 3.

§ 2(c) 7 Need for Liquidity, Income, Preservation of Capital. The total after-tax surrender value, reported above under 2(c) 3, is reported as the liquidity value. Life insurance death benefits create an estate value by nature of a mortality leveraged death benefit; therefore life insurance preserves income and creates capital based only upon a present value premium.

§ 2(c) 8 Special Relationship or Special Value. Life insurance is a unique investment asset; it has special value to both the grantor and the beneficiaries alike. To satisfy this section a simple factual statement of personal value to the grantor and beneficiaries may be included.

§ 2 DUTY TO MONITOR. All policy vitals need to be verified by the insurance company (not the agent - E&O are not covered by the insurance company - agents and brokers have to buy their own E&O coverage, so agents don't carry the credibility/liability of facts as those verified by the actual insurance company) on a frequency of every six months to a year. This includes verifying in-force status, the insured, the owner, the premium payer, the addresses and contact records, the face amount, the crediting interest rates, the dividend scale, dividends paid, or interest credited, the policy cost basis, gains and yields, policy expenses, riders, waivers, contestability clauses, suicide clauses, policy reports, blendings, loads, surrender charges, endorsements, smoker classes, ratings and other underwriting concessions, and exact policy terms, definitions, limitations, exceptions and conditions. Such items need to be placed in writing and amended to the trust. Also confirm that the actual policy is in the trust and any amendments, endorsements, or riders have been supplemented or revoked in writing. If you have lost a policy, a new one may be requested from the insurance company.

Each year a policy "in-force illustration" needs to be obtained from the insurance company. These projected policy values are hypothetical and cannot be used to compare policies, but they can reveal the underlying policies earnings record and be used to determine the corrected policy funding. As life insurance policy interest rates, internal policy charges, and dividend scales change from year to year, the premiums may need to be adjusted upwards or downwards to keep the policy funded to maturity dates. Keeping a policy fully funded is the heart of fiduciary duty. The leading most cause of policy failure is the lack of proper funding, based on best guess calculations that never came to pass.

§ 2 DUTY TO INVESTIGATE. This section may pose a problem for many trustees. How does a trustee know if a given life insurance policy is the very best, low cost, most efficient policy on the market? Many trustees just accept the policy that the grantor bought, or can buy given underwriting considerations. Bardes Consulting, Inc. provides a product rating service called a CPE report which rates a given product from one star to five stars. If the underlying product receives a rating of five stars, then the requirements of this section are met. If a product receives four stars or lower and the grantor is still insurable, then the trustee may have a duty to investigate products rated with five stars. Bardes Consulting, Inc. can provide access to product wholesalers that carry only five star rated products. Bardes Consulting, Inc. renders no fees or revenue from product referrals.

§ 2 DUTY TO DISVERSIFY. Life insurance death benefits are usually provided by one life insurance policy. To satisfy this section the financial ratings of the insurance company along with the general health of the life insurance industry need to be clarified and it needs to be stated that buying multiple life insurance policies is a safeguard that is not justified. Only if the financial ratings of the underlying insurance company are in question, should one diversify. The heart of this section is that diversification is necessary to the extent it reduces risk, i.e. sets off losses, and life insurance policies are themselves uniquely risk adverse.

§ 4 Duties at Inception of Trusteeship. Taking over a trust with existing life insurance holdings can pose a substantial risk to the trustee. It is highly recommended that a compete policy audit be performed. The policy audit will provide the basic requirements of UPIA.

§ 5 LOYALTY. Loyalty belongs to the best interest of the beneficiaries. In a life insurance trust, beneficiaries prefer a policy with the highest death benefit. However, the policy with the highest death benefits may not be the best, or any, policy that can be purchased. Bardes Consulting, Inc.'s CPE reports rates a given product from one to five stars. If the policy is rated five stars, then no further requirements are needed to satisfy this section. However, if the product is rated four stars or lower, and the grantor is still insurable, then the trustee has the obligation under this section to exhaust other product purchases (from five star products.) Bardes Consulting, Inc. can provide references to wholesalers that only offer five star products. Bardes Consulting, Inc. renders no fees or revenue from product referrals.

About Bardes Consulting: Located at www.LifeInsuranceConsulting.com, Bardes Consulting provides UPIA complaint policy audits for trustees of TOLI. Bardes' audits are based on and follow the above mentioned UPIA satisfaction requirements. For those trustees that wish to perform their own policy audits each year, Bardes provides self-guided audit checklists and forms from the website. You may also contact David Bardes directly at davidbardes@davidbardes.com, or visit www.LifeInsuranceConsulting.com.