William Byrnes' Tax, Wealth, and Risk Intelligence

William Byrnes (Texas A&M) tax & compliance articles

Treatment Life Insurance Contracts—Part II: Secondary Market Participants

Posted by William Byrnes on October 20, 2010

Why is this Topic Important to Wealth Managers?  Provides general taxation of life insurance contracts owned by a third party transferee, including the payment of death benefits as well as sale or exchange gain treatment.     

Today’s blogticle will discuss taxation of life insurance contracts from the purchaser’s prospective. 

As discussed yesterday, an insurance contract that carries a built-up cash value can be loaned against, collected by the beneficiary, surrendered or sold to a third party.   This blogticle deals in particular with payment of the face value to the third party caused by the death of the insured as well as another sale or exchange of the contract by the third party.  

What are the tax implications if the third party collects the death benefits?  What are the tax implications if the policy is sold to a third party? 

As a starting point, gross income includes all income from whatever source derived including (but not limited to) income from life insurance contracts (unless otherwise excluded by law).  Gross income specifically excludes amounts received (whether in a single sum or otherwise) under a life insurance contract, if such amounts are paid by reason of the death of the insured.  For the complete article see AdvisorFYI….

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