Acting as a trustee for an Irrevocable Life Insurance Trust (ILIT) comes with distinct responsibilities, from managing policies to mitigating liability. Yet, many corporate trustees still struggle with how to appropriately charge for these services, often absorbing significant costs for fear of losing relationships. The following guidance, informed by our recent client survey and conversations with trustees over the years, offers practical strategies to establish sustainable and competitive ILIT fee schedules.
The Case for Adjusting ILIT Fees
Many corporate trustees now recognize that accepting ILITs at nominal fees is no longer sustainable. Today, nearly 60% of surveyed organizations feel they are undercharging, acknowledging that low fees fail to reflect the liability and administrative burden ILITs impose. Trust departments today recognize that managing ILITs isn’t merely an accommodation—trust companies must price their services to align with the time, complexity, and risk involved.
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According to survey data, 41% of respondents manage fewer than 25 ILITs, while 39% manage between 25 and 100 ILITs. Only 16% of organizations oversee between 100 and 300 trusts, and those managing more than 750 ILITs represent just 1%. This wide disparity in ILIT portfolios demonstrates that different institutions may need to adopt unique fee strategies depending on the scale of their operations.
Additionally, 56% of institutions do not accept standalone ILIT accounts—those without other relationships with the organization—while 39% do. This trend reflects a growing emphasis on meaningful client relationships, with many trustees unwilling to take on the complexities of ILIT management without broader engagements to justify the effort.
Key Components of a Competitive ILIT Fee Schedule
To remain both competitive and profitable, consider building your ILIT fee schedule around the following elements:
Setup Fees: Establishing a trust relationship is labor-intensive, requiring documentation review and onboarding processes. In our recent client survey, 73% of respondents state that they do not currently charge an onboarding fee when accepting a new ILIT.
Annual Administrative Fees: The complexity of managing a life insurance policy—including tracking premiums, sending Crummey notices, and monitoring policy performance—warrants a reasonable annual fee.
Additional Policy Fees: Many trustees manage multiple policies within a single ILIT. Charging a supplemental fee per policy ensures the added effort is accounted for. 65% of survey respondents say they charge an additional fee for multiple policies held in one account.
Variable Policy Fees: Policies with investment components require extra fiduciary oversight. A higher fee reflects the need to monitor not only policy performance but also the underlying investments. 89% of survey respondents say that they do not yet charge an additional fee for this service.
Transfer or Surrender Fees: Trustees may charge a transfer fee if the policyholder moves the trust to another institution or surrenders the policy.
Termination Fees: When a death benefit is paid, many trustees charge a termination or distribution fee—typically 1-2% of the death benefit. If a portion of the proceeds stays with the institution, this fee can be waived or reduced. Only 38% of those surveyed say that they currently charge a termination fee. This is a great way to compensate your organization for the decades of managing the policy during the unfunded years.
Beneficiary Fees: ILITs with numerous beneficiaries can increase the administrative burden. Consider charging additional fees for trusts with more than five to seven beneficiaries.
Extraordinary Services Fees: Some tasks, such as completing life settlement paperwork or managing indemnification agreements, can exceed standard administration. An hourly fee ensures these efforts are adequately compensated. 62% of survey respondents say they charge fees for extraordinary services.
Outsourced Policy Management Fees: Most organizations outsource the annual policy review or policy management for ILITs. These fees are either included in the institution’s annual ILIT fee or itemized as an additional fee to offset the cost of management. Our tolimonitor solution offers the only turnkey outsourcing option for banks and trust companies, offloading ILIT-related workload by approximately 90% and significantly reducing liability through tolimonitor’s risk mitigation program.
Grandfathered ILITs: A Delicate Balancing Act
Many trust departments hesitate to raise fees on older ILITs, fearing client pushback. However, it is important to recognize that other institutions are no longer accepting ILITs at outdated, low fee levels. Communicating your fee structure clearly—especially when the trust remains under your care despite industry-wide increases—can foster transparency and minimize friction.
Data shows that the majority of surveyed institutions manage fewer than 100 ILITs, meaning fee adjustments are essential to balancing operational costs and long-term profitability. Even small increases across portfolios can significantly improve sustainability without disrupting client relationships.
Read More: 5 Possible Outcomes of Poor Life Insurance Trust Management
Final Thoughts: Charging for the True Value of Your Service
Managing ILITs is no longer just about safeguarding policies—it’s about maintaining sustainable operations and managing liability. Your fee structure should reflect the complexities involved and ensure you are not subsidizing services at a loss. By building a transparent, tiered fee schedule, trust departments can protect their profitability while continuing to provide valuable service to clients.
For trust departments looking to simplify ILIT management, ITM’s tolimonitor solution offers a turnkey approach to outsourcing policy management, reducing workload by up to 90% and mitigating liability. Contact us to learn more about how tolimonitor can streamline your ILIT operations and help you focus on your core client relationships.
