CPAs are increasingly advising high-net-worth clients to use trust-owned life insurance (TOLI) as the cornerstone of their estate plans And many CPAs are now choosing to serve as trustees of such trusts.

Trust owned life insurance or TOLI is often central to many client plans, enabling clients to provide for survivors, cover estate tax liability planning, balance inheritances among heirs and meet charitable objectives.

If you are considering accepting a trustee designation, you should be mindful of the hazards inherent to this task and ensure that you have the skills and knowledge to take on the challenge. It will usually involve some specific training in life insurance.

As a CPA, even if you shun this weighty responsibility, you can still serve critical client needs in this area. If you accept a trustee designation, or are already a trustee, you can assess your approach against fiduciary requirements and best practices. With the passage of the Uniform Prudent Investor Act in the mid-1990s, trustees' fiduciary duties are held to a higher standard than they were under previous law. Many of those practices, however, also apply to life insurance generally, whether or not a trust is involved.

As trusted advisers, CPAs have an obligation to educate their clients about the pending crisis in TOLI. A real problem looms on the horizon. Certain studies have shown that more than 25 percent of non-guaranteed flexible TOLI policies will lapse during the insured's lifetime. You should take the opportunity to work with a competent insurance professional to protect your clients' plans and assist your clients in developing a best-practices review for their TOLI.

This article has been excerpted from the Journal of Accountancy. Read the full article here.