Risk Management & Insurance Planning
The sale of life insurance policies, commonly referred to as life settlement transactions, is becoming an increasingly popular and heavily marketed way for policy owners to realize the value in their life insurance policies. This article discusses the financial and tax ramifications of life settlement transactions and how CPAs can help clients obtain the best results from them.
In a recent tax court decision, an individual was as determined for tax purposes to be the owner of assets in segregated asset accounts held
for the benefit of private placement variable
life insurance policies.
The prolonged low-interest-rate environment can have a dramatic effect on universal life insurance policies.
This exhibit accompanies the Personal Financial Planning column in the June 2014 issue of The Tax Adviser.
“Pension rescue” is a sales concept used to help sell life insurance. The problem with pension rescue is that it is based on a valuation of the life insurance policy that may not hold up to IRS scrutiny.
The Tax Court held that where the profit-sharing plan of an S corporation wholly owned by the taxpayers distributed to them a life insurance policy on their lives, the taxpayers could not reduce the taxable value of the policy by the amount of the surrender charge for purposes of determining their income from the transfer
The tax treatment of life settlement proceeds has been unclear until recently. However, the IRS issued guidance during 2009 that clarifies when and to what extent policyholders must recognize capital gain when they sell a life insurance policy.
Editor: Michael David Schulman, CPA/PFS One of the most attractive aspects of life insurance as an estate and financial planning tool is the tax treatment of the death proceeds. Generally, the proceeds of a life insurance policy received by a beneficiary are entirely free from income tax (Sec. 101(a)(1)). However,
Long-term care is defined in the Code as “necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, and maintenance or personal care services” for a chronically ill individual.
