How are Life Settlements taxed?
On May 1, 2009, the Internal Revenue Service issued a Revenue Ruling for sellers that constitutes the official position of the IRS on certain key tax issues (they also issued an opinion for buyers). Settlement Benefits Association does not make any representations as to the tax treatment of a sale of a life insurance policy. Settlement Benefits Association strongly encourages you to consult with your tax advisor, attorney or financial planner as it relates to your specific situation.
Do I have a fiduciary duty to offer Life Settlements?
In many cases, financial professionals will have this duty. For example:
- With a term policy, an agent may need to offer a Life Settlement as an alternative to surrendering or lapsing the policy.
- With a trust owned policy, studies have shown that over 50% of advisors who reported acting as trustee stated they do no have guidelines and procedures for handling life insurance. Furthermore, over 75% of family or friends that act as trustees have not reviewed life insurance policies located in trusts within the last 5 years. (WHO’S MINDING THE TRUST-OWNED INSURANCE?, TRUST & ESTATES, 5/2003)
Can Life Settlements be used in charitable situations?
Life Settlements can be very beneficial when a client is considering a charitable contribution, both for the donor and for the charity. For more information, visit our Planned Giving section.
How does the appraisal process work?
- Step 1: The policy owner or representative requests an appraisal form.
- Step 2: A completed appraisal request form, along with the signed authorizations, are returned to Settlement Benefits Association. (Fax copies are preferred to expedite the underwriting process.)
- Step 3: All of the necessary information is gathered (APS, VOC, LOC, Illustrations, etc.) in order to be independently reviewed by each carefully selected funding organization.
- Step 4: The highest market off is negotiated.
- Step 5: This offer is relayed to the policy owner or representative for acceptance.
- Step 6: Upon acceptance, contracts and change forms are generated and forwarded to the owner/insured for review and signatures.
- Step 7: The signed documents are returned to the funding organization. Upon receipt of the completed closing package, insurance change forms are forwarded to the insurance carrier for recording.
- Step 8: Upon written verification of the change of ownership and beneficiary, funds are wired into the account(s) designated by the policy owner.