Effective July 1, 2010, Florida joined several other states in reducing the liability of trustees of irrevocable life insurance trusts (“ILITs”), with the enactment of § 736.0902 – Non-application of prudent investor rule.  The Florida prudent investor rule protections relieve the trustee from any duty to manage the life insurance as an investment.  Further, it relieves the trustee from liability for any loss sustained with respect to the life insurance.

The statute also removes any duty to determine whether there is a sufficient insurable interest in the policy as long as the trustee did not have knowledge of a lack of insurable interest or a STOLI-type arrangement.  However, through the “qualified person” concept, the applicability of the protection depends on the source of funds for payment of the premiums.

A trust agreement can opt out of the application of the statute, and unless the trust agreement opts in, beneficiaries can eliminate the application of the statute by objecting upon receipt of notice.