Any time you receive a large sum of cash, you may wonder what it means for your taxes. Understanding your Viatical Settlement tax responsibilities can help you avoid under or overpaying. Our tax estimator can help you estimate your obligations.
In a Viatical Settlement, you sell your insurance policy to a third party. In most cases, you will not have to pay federal taxes on your settlement. To qualify for tax-free status, you and the buyer need to follow all laws and regulations of Viatical Settlements, as violations in the process can lead to a tax bill.
State tax laws can vary. While many states use the same guidelines as the federal government, some do require a tax on the settlement.
You will have to pay federal taxes on a Viatical Settlement if any of the following are true:
To qualify for a Viatical Settlement, the policy owner must:
Terminally ill policy owners have considerable flexibility on spending their settlement funds without triggering a tax. Once the settlement is complete, they can spend the money however they want. Individual policy owners do not pay taxes on their Viatical Settlement. If the policy owner is a corporation, as is the case in employment-based life insurance, the corporation will need to pay taxes.
You may need to pay taxes on your Viatical Settlement if the buyer does not meet certain requirements. The buyer you work with should be licensed and have a track record of purchasing Viatical Settlements. Otherwise, your settlement may not be tax-exempt.
At Settlement Benefits Association, we have developed longstanding relationships with dozens of funding groups around the country. Like us, all our partners are licensed and have a history working with our clients and others, fulfilling state and IRS regulations. In addition, we will take care of all communications on your behalf.
It is important to understand how your taxes can change with the introduction of a Viatical Settlement. With our tax estimator, we take your policy and all the details you can provide for us to create a concise PDF document to share with your tax professional. This document will help you, us, and the policy buyer understand how this transaction will affect each group’s bottom line.