Wealth & Risk Management Blog

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

Posts Tagged ‘Agents and Marketers’

Health Insurance Providers Fee (or Tax or Penalty, call it what you will) – IRS guidance issued yesterday…

Posted by William Byrnes on November 27, 2013


and it has finally come to pass time … the new health care penalty, tax, fee – whatever it is, to be calculated for businesses.   Perhaps not the best timing considering the rocky roll out.  On the other hand, better to get the bad news 11 months before the next election, when it can be forgotten by the time mail in ballots are sent out.

Notice 2013-76 provides guidance on the health insurance providers fee related to (1) the time and manner for submitting Form 8963, “Report of Health Insurance Provider Information,” (2) the time and manner for notifying covered entities of their preliminary fee calculation, (3) the time and manner for submitting a corrected Form 8963 for the error correction process, and (4) the time for notifying covered entities of their final fee calculation.

For each fee year, the IRS will make a preliminary fee calculation for each covered entity and will notify each covered entity.  The notification will include (1) the covered entity’s allocated fee; (2) the covered entity’s net premiums written for health insurance of United States health risks; (3) the covered entity’s net premiums written for health insurance of United States health risks taken into account after application of § 57.4(a)(4); (4) the aggregate net premiums written for health insurance of United States health risks taken into
account for all covered entities; and (5) instructions for how to submit a corrected Form 8963 to correct any errors through the error correction process.

The information reported on each Form 8963 will be open for public inspection.  This aspect will be very interesting as various groups pull and then post business’ 8963s.

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Gifting Life Insurance Policies: Not a Simple Matter

Posted by William Byrnes on October 17, 2013


Making a gift of a life insurance policy can prove to be anything but simple for clients who may not know what questions to ask in order to ascertain the potential tax consequences of the transaction. Transferring a policy that is subject to a policy loan can prove even more problematic, even if the transferee is a family member and the transfer is intended entirely as a gift.

Though the rule’s name might suggest otherwise, the transfer for value rule can create a serious tax trap for a client who transfers a life insurance policy, even if nothing tangible actually changes hands in the transaction.   Want to read more?  Open access content at Think Advisor!

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Whole life — A new asset class to allocate?

Posted by William Byrnes on October 4, 2013


Clients who think they have seen all that whole life insurance has to offer need to take a closer look.  Insurance carriers have taken steps to bring whole life products back to relevance in today’s competitive environment.  In order to compete in a crowded marketplace for insurance products, carriers have developed options to allow clients to transform a traditional whole life policy into a flexible long-term investment product that can provide built-in protection against illness or disability.  Take a look at this entire article on Life Health Pro

If looking for planning tips and client acquisition strategies, feel free to explore National Underwriter Advanced Markets Journal and Main Library 

 

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Term Life: An better option for clients?

Posted by William Byrnes on September 12, 2013


Advisors who think they know all there is to know about term life insurance might be surprised to learn that these policies are finally being brought up to speed.

Increasing demand for already popular term life policies has insurance companies jumping to differentiate their products in a crowded market. The result is a new generation of term life products that can be customized to meet the needs of an extremely diverse section of the market.

Whether your clients are concerned about covering education costs or providing enhanced benefits in the case of specific accidents, modern term life insurance might be the solution.  … Read this full analysis by William Byrnes at  > LifeHealthPro <

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How to Build Your Own Solution to Long-Term Care Insurance Scarcity

Posted by William Byrnes on September 10, 2013


A basic problem for clients looking for long-term care insurance today is that they simply may not be able to find it. Major carriers have pulled out of the market in the last year, and the policies that remain can be prohibitively expensive and contain strict qualification requirements.

Fortunately, the product market is evolving so that a relatively new method of securing tax-preferred long-term care benefits has emerged. Hybrid annuity products that combine the estate and income planning features of an annuity with the protection of long-term care insurance are becoming increasingly popular among clients looking for replacement insurance.

Read William Byrnes’ analysis of building your own solution to long-term care insurance at > The Law Professor Column of Think Advisor <

 

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The life insurance fiscal cliff: The end of a tax-preferred product class?

Posted by William Byrnes on December 7, 2012


Clients today assume that the tax-free status of life insurance is a given and may have even engaged in fiscal cliff planning that involves the purchase of life insurance to provide a source of tax-free investment income. Given today’s political climate, it is important for clients to realize that no tax preference is safe and that the tax benefits they have come to expect from life insurance are no exception.

read this article at Life Health Pro e-zine

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What Next? ILITs & Estates under 5MM

Posted by William Byrnes on October 26, 2011


Life insurance is a common tool for ensuring estates have adequate liquidity to pay estate expenses and taxes. But recent changes to the estate tax have some people questioning whether the high premiums they’re paying are worth it when their estates are no longer likely to be hit by the estate tax.

With a $5 million exclusion amount and brand-new exclusion portability provisions, far fewer households have to deal with the federal estate tax. But is allowing unneeded life insurance to lapse the best solution?

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of life insurance valuation in Advisor’s Journal, see Relative Policy Value of Life Insurance (CC 11-57).

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STOLI Scheme Lands Insurance Agent in Jail

Posted by William Byrnes on August 29, 2011


A California insurance agent will spend years behind bars for his part in a stranger originated life insurance (“STOLI”) scheme that swindled six victims out of almost $800,000. In addition to being sentenced to 3 years 8 months in jail, Victor L. Weber, 55, was also ordered to pay restitution to his victims.

In the typical STOLI arrangement, investors or promoters approach seniors to allow investors to purchase life insurance on the seniors’ lives. Insureds are typically enticed to sign on the dotted line by promises of “free life insurance,” cash payments, vacations or other perks. Insureds are usually unable to purchase needed life insurance because their life insurance capacity is occupied  by the investor owned policy.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber)

For previous coverage of stranger-originated life insurance in Advisor’s Journal, see New York Court of Appeals Upholds STOLI Arrangement (CC 10-106) & Recent STOLI Case Is a Big Win for Insurers (CC 10-59).

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Turning Plan Sponsors’ Risk into Reward

Posted by William Byrnes on August 12, 2011


Barry Flagg continues his popular series, this month discussing the cash value of life insurance as a factor of suitability. The desirability of a permanent life insurance product is influenced by the degree of cash value liquidity throughout the life of the policy. All other factors being equal, the higher the liquid cash value after deduction of cost of insurance charges and policy expenses (including contingent surrender charges), the more suitable the policy.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For in-depth analysis of income taxation of life insurance, see Advisor’s Main Library: D–Gain Or Loss On Surrender Or Sale

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Is the Life Insurance Gender Gap Really Closing?

Posted by William Byrnes on August 3, 2011


Historically, the amount of life insurance purchased by men dwarfed that of women. Although the gender gap is closing, there’s still a discrepancy between the amount of life insurance coverage owned by men and women. A recently released study by the Life Insurance and Market Research Association (LIMRA) revealed that, although men and women own life insurance in nearly equal numbers, and women are working now more than ever, the amount of coverage owned by women is still fewer than men.

Historically, men have been the main source of household incomes; but recent research has revealed that about 30 percent of women earn more money than their husbands. Despite this change, LIMRA’s studies found that women’s life insurance ownership has not increased proportionately. Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For in-depth analysis of life insurance in qualified plans, see Advisor’s Main Library: A – Life Insurance in Qualified Plans & 412(i) Plans.

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Tax-Free Exchange Can Erase Policy’s Tax Benefits

Posted by William Byrnes on July 18, 2011


A recent IRS Revenue Ruling provides an important reminder for us of the rules for deducting interest that’s paid or accrued on a business life insurance policy loans. Knowing how and when policy loan interest is properly deductible can mean the difference between closing the sale in the first instance and an IRS audit down line if these rules are ignored.

In general, interest paid on a life insurance policy loan is not deductible for income tax purposes; but there are some exceptions for life insurance purchased for business purposes. The deductibility of policy loan interest has changed significantly over the past 20 years, so an intimate knowledge of the specifics is imperative when selling or transacting on a policy that’s issued to a business.  Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous Advisor’s Journal coverage of the exception to the pro rata limitation on interest deduction, see Obama Budget Would Undercut Utility of Life Insurance in Small Business Planning (CC-11-41).

For in-depth analysis of corporate-owned life insurance, see Advisor’s Main Library: D—Deductibility Of Business Insurance Premiums, E—Premiums As Taxable Income To The Insured & F—Taxability Of Corporate Owned Life Insurance Proceeds At Death.

Posted in Taxation, Wealth Management | Tagged: , , , , , , , | Leave a Comment »

Historical Performance of Underlying Cash Value of Life Insurance

Posted by William Byrnes on July 17, 2011


Last month, Advanced Market expert Barry Flagg talked about the relevance of policy cash values to the overall suitability of a permanent life insurance policy. This month, he expanded on the cash value topic by addressing how cash value is generally a product of the number of cash value investment options, the historical performance of such cash value investment options, and the cost-effectiveness of the various cash value allocation options.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of valuation in Advisor’s Journal, see Life Insurance Valuation (CC 10-09).

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Obama Budget Would Undercut Utility of Life Insurance in Small Business Planning

Posted by William Byrnes on April 11, 2011


The Obama administration’s 2012 budget includes an attack on corporate owned life insurance that could further erode its tax advantages and put a ding in carriers’ balance sheets.  Washington’s repeated assaults on corporate-owned life insurance seem to be motivated by its view of corporate owned life insurance as simply a tax arbitrage opportunity for big corporations, ignoring its importance for smaller businesses that rely on a few key people to keep them afloat.  Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For in-depth analysis of corporate-owned life insurance, see Advisor’s Main Library: D—Deductibility Of Business Insurance PremiumsE—Premiums As Taxable Income To The InsuredF—Taxability Of Corporate Owned Life Insurance Proceeds At Death.

 

Posted in Insurance, Tax Policy | Tagged: , , , , , , , | 1 Comment »

New York Life Insurance Commission Disclosures

Posted by William Byrnes on January 20, 2011


Beginning last week life insurance brokers in the Big Apple started disclosing commissions to consumers.  New York is one of the first states that are mandating life insurance commission details to be disclosed to clients.

Under New York Insurance law, [1] an insurance producer selling or renewing an insurance contract must disclose the following information to the purchaser orally or in writing not later than application for the insurance contract or the renewal:

(1)     whether the insurance producer represents the purchaser or the insurer for purposes of the sale;

(2)     that the insurance producer will receive compensation from the selling insurer based on the  insurance contract the producer sells;

(3)     that the compensation insurers pay to insurance producers may vary depending on a number of factors, including the insurance contract and the insurer that the purchaser selects, the volume of business the producer provides to the insurer or the profitability of the insurance contracts  that the producer provides to the insurer; and

(4)     that the purchaser may obtain information about the compensation expected to be received by the producer for the sale and for any alternative quotes obtained by the producer by requesting such information from the producer.

To read this article excerpted above, please access http://www.advisorfyi.com/2010/12/new-york-life-insurance-commission-disclosures/

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Insurance Agents Sued for Giving Bad Tax Advice

Posted by William Byrnes on December 16, 2010


Can life insurance agents and their carriers be held responsible for adverse tax consequences resulting from their advice to customers about transactions involving the policies agents recommend and sell?  A customer who relied on agents for tax advice concerning an annuity transaction believed the agents should be held to account for recommending a transaction that turned out to carry an unexpected tax bill.   She sued the Insurance Company in federal district court, claiming its agents committed fraud against her by failing to inform her of the tax consequences of an annuity rollover.

The plaintiff owned two annuities—valued at about $80,000 and $12,000—that she received in a divorce settlement.  She contacted the insurance company to find out her options for rolling the annuities over into one policy. Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

We invite your questions and comments by posting them or by calling the Panel of Experts.

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Key Employee Life Insurance and the Transfer for Value Rule

Posted by William Byrnes on November 16, 2010


Why is this Topic Important to Wealth Managers?  Discusses a basic deferred compensation plan available to many small businesses seeking to retain key personnel.  Provides discussion on common transactions as well as expected tax consequences.

Key employee insurance generally means “a life insurance policy owned by and payable to a business that insures the lives…of employees whose deaths would cause a significant economic loss to the business, upon whose skills talents, experience or business or personal contacts the business is dependent, and who would be difficult to replace.” [1]

Generally, life insurance premiums payable by a business are not deductible. [2]  Which means the income received (whether in a single sum or otherwise) by the business, under the life insurance contract by reason of the death of the insured, is not included in gross income.  [3] 

If a key employee policy is transferred for valuable consideration, just as with other life insurance policies, the income tax benefit normally afforded to life contract proceeds payable at death may be extinguished. [4]

As was discussed a few weeks back in our blogticle: AdvisorFYI- Treatment Life Insurance Contracts—Part II: Secondary Market Participants, “[i[n the case of a transfer for valuable consideration…the amount excluded from gross income shall not exceed an amount equal to the sum of the actual value of the consideration paid and the premiums and other amounts subsequently paid by the transferee.” [5]   In other words, the transferee must include the death benefits as gross income over the amount of consideration and any additional premiums paid. 

Read the entire blogticle at AdvisorFYI.

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Use Charitable Giving to Enhance Family Business Succession Planning

Posted by William Byrnes on October 28, 2010


Life insurance is often the cornerstone of an estate plan when a family business is involved.  As a follow-up to the article on supporting a surviving second spouse without liquidating the family business, this article describes a technique that introduces a charitable giving component into family business succession planning.

Consider the following scenario:

Your client Jonathan has two primary legacy planning objectives. Foremost is his desire to ensure a smooth transfer of the family business to his daughter, Eva. Jonathan also wants to make a sizeable lifetime gift to his favorite charity and provide a retirement nest egg for his wife.

For prior Advisor’s Journal coverage of family business succession planning using life insurance, see Supporting a Surviving Second Spouse without Liquidating the Family Business (CC 10-53).

See the AUS Main Libraries, Section 9 C2—The Law Of Wills, for a discussion of a spouse’s right to elect against the will.

We invite your questions and comments by posting them at AdvisorFYI or by calling the Panel of Experts.

 

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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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Subchapter L: Life Insurance Companies

Posted by William Byrnes on October 9, 2010


Why is this Topic Important to Wealth Managers? Presents an introduction into the taxation of U.S. life insurance companies.  Provides insight for wealth managers considering advanced planning techniques involving the use of life insurance companies.

Congress has determined, generally, that insurance companies by issuing insurance contracts are serving the public good.  Moreover, Congress has determined that the tax accounting applicable to corporations does not adequately align to the operations of the insurance industry.  Thus, to distinguish insurance companies, Congress created a special chapter of the Internal Revenue Code (subchapter “L”) applicable only for them.  Subchapter L is divided into Section 801 to 848 of which 801 to 818 address the taxation of lile insurance companies.

By example, because of the nature of the life insurance business, in that liabilities carry long into the future, Congress has afforded special deductions to this class.  To avoid potential reserve deficiencies by recognizing income (and therefore incurring a present tax liability) when premiums are collected, Congress essentially allows underwriting gains to occur once the insurance liability obligations have expired.

Let’s take a look at the Code specifically to see how these mechanics actually work.  First and foremost, pursuant to IRC Sec. 801 a life insurance company is taxed at the same rates as other corporations.  These rates can be found in IRC § 11.

A life insurance company means under IRC § 816(a), “ an insurance company which is engaged in the business of issuing life insurance and annuity contracts”, generally, as well as accident or health contracts, so long as, the company’s “life insurance reserves, plus unearned premiums” on “noncancellable” policies, “comprise more than 50 percent of its total reserves.”

Read on about Subchapter L: Life Insurance Companies

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Life Insurance Ownership Hits Fifty-Year Low

Posted by William Byrnes on September 27, 2010


Life insurance ownership has hit a fifty-year low, according to the August-released Trends in Life Insurance Ownership, a LIMRA study administered once every six years.  But do the economic clouds have a silver—or better yet, gold—lining?

Today’s analysis by our Experts Robert Bloink and William Byrnes is located at AdvisorFX Journal Life Insurance Ownership Hits Fifty-Year Low

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Life Insurance Ownership Hits Fifty-Year Low

Posted by William Byrnes on September 19, 2010


Life insurance ownership has hit a fifty-year low, according to the August-released Trends in Life Insurance Ownership, a LIMRA study administered once every six years.  But do the economic clouds have a silver—or better yet, gold—lining?

Today’s analysis by our Experts Robert Bloink and William Byrnes is located at AdvisorFX Journal Life Insurance Ownership Hits Fifty-Year Low

After reading the analysis, we invite your questions and comments about policies maturing after age 100 by posting them below, or by calling the Panel of Experts.

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