Posts Tagged ‘insurance’
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 Premiums, E—Premiums As Taxable Income To The Insured & F—Taxability Of Corporate Owned Life Insurance Proceeds At Death.
Posted in Insurance, Tax Policy | Tagged: Agents and Marketers, Business, Corporate-owned life insurance, Financial services, insurance, life insurance, United States, Washington | 1 Comment »
Posted by William Byrnes on April 4, 2011
Last month, we discussed the obvious relevance of pricing competitiveness to overall life insurance product suitability. This month, we discuss the stability of pricing representations which is also a factor of suitability. After all, pricing that appears competitive at the time of sale/purchase but which cannot be maintained can be worse than a less-competitive product with more stable pricing representations.
For instance, while premiums are often considered the price/cost of a life insurance policy, the premium is not the price/cost of a life insurance policy (unless contractually guaranteed like in term life insurance or guaranteed universal life insurance) any more than the $2,000 contributed to an Individual Retirement Account (IRA) is the cost of the IRA. In both cases, the cost is the sum of what is deducted from the premium/contribution. 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 suitability in Advisor’s Journal, see Life Insurance Product Suitability (CC 10-90), Financial Strength and Claims-Paying Ability (CC 10-115) & Cost Competitiveness of Life Insurance (CC 11-11).
Posted in Insurance | Tagged: Business, Financial services, insurance, Insurance policy, life insurance, Pricing, term life insurance, United States | Leave a Comment »
Posted by William Byrnes on April 3, 2011
Why is this Topic Important to Wealth Managers? This topic discusses the new regulatory agency that will have an effect on most life insurance companies doing business in New York. Because the new regulatory agency will oversee insurance and banking, it is likely that changes in the insurance compliance law are just around the corner. After the financial crisis of 2008, it appears New York is taking action to prevent future disruptions in the market. Wealth managers should be aware of the new agency as changes to insurance regulation and compliance are sure to result from the creation of this organization.
New York State is in the process of creating a new Department of Financial Regulation (DFR) which is designed to harnesses the regulatory powers and expertise of the Banking and Insurance Departments, as well as the Consumer Protection Board, by combining the functions of each, to make the State’s oversight of financial services responsive to the 21st century needs of the industry and its consumers.
This new State agency, created pursuant to legislation submitted as part of the 2011-2012 State Executive Budget, consolidates the functions, operations and staff of the Banking and Insurance Departments, along with related segments of the Consumer Protection Board, into a single State agency.
Consolidation of these agencies and activities within a single agency platform is intended to afford the State the ability to unify the State’s regulation of financial services and to more rapidly and capably respond to changing market practices and consumer preferences, thereby ensuring the industry’s continued integrity while shielding consumers from abuses.
In addition to enhancing and refining the State’s regulatory oversight of the industry, the consolidation will provide the State with the opportunity to reduce overall spending with the use of shared services.
The Superintendent of the Department of Financial Regulation will be appointed by the Governor, with the consent of the Senate. The Department’s main offices will be located in Albany and New York City.
The Department’s main responsibilities will be carried out through two major programs: regulation and consumer protection. Read the analysis at AdvisorFYI
Posted in Compliance, Insurance | Tagged: Consumer protection, Financial services, Government agency, insurance, New York, New York State, Regulation, United States | Leave a Comment »
Posted by William Byrnes on March 31, 2011
The Tax Court recently calculated the fair market value (“FMV”) of life insurance policies distributed by a terminated 419 welfare benefit plan. The FMV of the policies—which must be included in the taxpayers’ income—was determined by the court based on: (1) surrender charges, (2) conditions imposed on the taxpayers by the insurance company, and (3) “paid-up insurance coverage remaining on the policies as of the date of distribution.” 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 policy valuation in Advisor’s Journal, see Tax Courts Holds Employee Taxable for Value of Life Insurance Owned by Welfare-Benefit Plan (CC 11-14).
For in-depth analysis of welfare benefits plans, see Advisor’s Main Library: B—Welfare Benefit Funds.
Posted in Retirement Planning | Tagged: Business, Employment, Fair market value, insurance, life insurance, Policy, tax, Welfare | Leave a Comment »
Posted by William Byrnes on March 22, 2011
Tax and insurance advisors looking for answers on how the new Tax Relief Act of 2010 will impact their clients are finding them in The National Underwriter Company’s just-published Selected Provisions and Analysis of the Tax Relief Act of 2010. The proprietary analysis is the only practitioners’ guide in Q&A format that answers the most critical questions asked by clients on insurance, estate and gift tax law changes.
Copies of the 64-page report are available for only $12.95 plus shipping and handling here. Producers and their companies can also license use of their logos and contact information directly on the cover of the guide for a marketing and client-management tool.
National Underwriter’s wealth management experts and report authors, Professor William H. Byrnes, Esq., LL.M, CWM and Robert Bloink, Esq., LL.M., noted, “While most media attention has focused on the Act’s retention of existing tax rates on the highest-earning Americans, tax, insurance and investment advisors are finding that the most important changes, from their perspective, are likely to be found in insurance, estate and gift tax provisions that will drive client decisions on investment strategy and wealth management priorities in 2011 and beyond.”
Rick Kravitz, Vice President & Managing Director of Summit Business Media’s Reference Division, said, “This proprietary analysis – compiled by leading experts in the field – demonstrates National Underwriter’s commitment to bringing timely and critical updates to advisors and financial planners so that they can successfully build their practices and better serve their clients.”
Prof. Byrnes, a former Coopers & Lybrand associate director in international tax and now Dean of the wealth management graduate program at Thomas Jefferson School of Law, noted that the 64-page analysis has answers to more than 100 important questions in these areas:
- Income Tax
- Estate and Gift Tax
- Generation Skipping Transfer Tax
- Deduction for State and Local Sales Taxes
- Alternative Minimum Tax
- Tax Credits
- Payroll Tax Holiday
- Wage Credit for Employees Who Are Active Duty Members of the Military
- Charitable Distributions from Retirement Accounts
- Bonus Depreciation and Section 179 Expensing
- Basis Reporting Requirements for Brokers and Mutual Funds
- Regulated Investment Company Modernization Act of 2010
- Health Care Act
- Form 1099 Reporting Requirement for Businesses
- American Jobs and Closing Tax Loopholes Act of 2010
- Requirements for Tax Return Preparers
“This is the only guide available on the market today that gives financial planners and producers issue-specific, time-critical information in Q&A format that addresses their most important technical questions with content that can also be used directly in client presentations,” Prof. Byrnes added. “The unique combination of The National Underwriter Company’s editorial staff and the resources and professional experience of the wealth management faculty at Thomas Jefferson School of Law provides assurance that these are answers that can be counted on.”
About The National Underwriter Company
For over 110 years, The National Underwriter Company has been the first in line with the targeted tax, insurance, and financial planning information you need to make critical business decisions. With respected resources available in print, on CD, and online, National Underwriter remains at the forefront of the evolving insurance industry, delivering the thorough and easy-to-use resources you rely on for success. National Underwriter is a Summit Business Media company.
About Summit Business Media
Summit Business Media is the leading B2B media and information company serving the insurance, investment advisory, professional services and mining investment markets through a variety of channels, including print, online and live events. Summit provides breaking news and analysis, in-depth practice management strategies, business-building techniques and actionable data to the markets it serves. Through its Media and Reference Divisions, Summit publishes 16 magazines, 20 websites and 150 reference titles. Summit’s Event Division hosts a dozen conferences across the spectrum of markets the company services. Summit’s Data Division is the leading data provider of financial, marketing and benefits information on corporations, insurance companies and life, benefits and property-casualty agents.
Summit employs nearly 400 employees in ten offices across the United States. For more information, please visitsummitbusinessmedia.com.
Posted in Taxation | Tagged: Employment, income tax, insurance, Summit Business Media, Tax credit, Tax law, Thomas Jefferson School of Law, United States | Leave a Comment »
Posted by William Byrnes on March 15, 2011
According the FCIC report, in the late 90s, AIG leveraged its superior credit rating—its “most valuable asset”—to branch out beyond standard insurance products and become a major over-the-counter derivatives dealer. Through its subsidiary AIG Financial Products, AIG eventually amassed a derivatives portfolio with $2.7 trillion in notional value.
A significant portion of AIG’s derivatives business was devoted to credit default swaps (CDS’s) that “insured” debt held by financial firms and institutional investors. A CDS is a contract under which the party writing the CDS agrees to reimburse the party purchasing protection if there is a default on the underlying debt. In exchange, the party purchasing protection makes a series of payments to the issuer of the CDS—essentially premium payments.
AIG’s credit protection business grew rapidly, swelling from $20 billion in 2002 to $211 billion in 2005 and $533 billion in 2007.
Although insurance policies and CDS’s are similar, crucial differences between the two played a critical role in the crisis. An insurance company is obligated to set aside reserves to balance against potential losses; but a credit default swap, not being an insurance policy, is not subject to a reserve requirement. As a result, AIG was not required to put up collateral when it issued hundreds of billions in CDS’s. What the company did do, however, was promise to post collateral if its credit rating was downgraded.
Read the entire analysis by linking to AdvisorFX ! Sing up for the no obligation free trial – with full access to Advanced Underwriting Service, the Presentation Aids, Soft Skill Tools, Calculators, and Daily Journal.
Posted in Wealth Management | Tagged: AIG, American International Group, Business, Credit default swap, Derivatives, Financial institution, Goldman Sachs, insurance | Leave a Comment »
Posted by William Byrnes on March 14, 2011
Tax and insurance advisors looking for answers on how the new Tax Relief Act of 2010 will impact their clients are finding them in The National Underwriter Company’s just-published Selected Provisions and Analysis of the Tax Relief Act of 2010. The proprietary analysis is the only practitioners’ guide in Q&A format that answers the most critical questions asked by clients on insurance, estate and gift tax law changes.
Copies of the 64-page book are available for only $12.95 plus shipping and handling here. Producers and their companies can also license use of their logos and contact information directly on the cover of the guide for a marketing and client-management tool.
National Underwriter’s wealth management experts and report authors, Professor William H. Byrnes, Esq., LL.M, CWM and Robert Bloink, Esq., LL.M., noted, “While most media attention has focused on the Act’s retention of existing tax rates on the highest-earning Americans, tax, insurance and investment advisors are finding that the most important changes, from their perspective, are likely to be found in insurance, estate and gift tax provisions that will drive client decisions on investment strategy and wealth management priorities in 2011 and beyond.”
Rick Kravitz, Vice President & Managing Director of Summit Business Media’s Reference Division, said, “This proprietary analysis – compiled by leading experts in the field – demonstrates National Underwriter’s commitment to bringing timely and critical updates to advisors and financial planners so that they can successfully build their practices and better serve their clients.”
Prof. Byrnes, a former Coopers & Lybrand associate director in international tax and now Dean of the wealth management graduate program at Thomas Jefferson School of Law, noted that the 64-page analysis has answers to more than 100 important questions in these areas:
- Income Tax
- Estate and Gift Tax
- Generation Skipping Transfer Tax
- Deduction for State and Local Sales Taxes
- Alternative Minimum Tax
- Tax Credits
- Payroll Tax Holiday
- Wage Credit for Employees Who Are Active Duty Members of the Military
- Charitable Distributions from Retirement Accounts
- Bonus Depreciation and Section 179 Expensing
- Basis Reporting Requirements for Brokers and Mutual Funds
- Regulated Investment Company Modernization Act of 2010
- Health Care Act
- Form 1099 Reporting Requirement for Businesses
- American Jobs and Closing Tax Loopholes Act of 2010
- Requirements for Tax Return Preparers
“This is the only guide available on the market today that gives financial planners and producers issue-specific, time-critical information in Q&A format that addresses their most important technical questions with content that can also be used directly in client presentations,” Prof. Byrnes added. “The unique combination of The National Underwriter Company’s editorial staff and the resources and professional experience of the wealth management faculty at Thomas Jefferson School of Law provides assurance that these are answers that can be counted on.”
About The National Underwriter Company
For over 110 years, The National Underwriter Company has been the first in line with the targeted tax, insurance, and financial planning information you need to make critical business decisions. With respected resources available in print, on CD, and online, National Underwriter remains at the forefront of the evolving insurance industry, delivering the thorough and easy-to-use resources you rely on for success. National Underwriter is a Summit Business Media company.
About Summit Business Media
Summit Business Media is the leading B2B media and information company serving the insurance, investment advisory, professional services and mining investment markets through a variety of channels, including print, online and live events. Summit provides breaking news and analysis, in-depth practice management strategies, business-building techniques and actionable data to the markets it serves. Through its Media and Reference Divisions, Summit publishes 16 magazines, 20 websites and 150 reference titles. Summit’s Event Division hosts a dozen conferences across the spectrum of markets the company services. Summit’s Data Division is the leading data provider of financial, marketing and benefits information on corporations, insurance companies and life, benefits and property-casualty agents.
Summit employs nearly 400 employees in ten offices across the United States. For more information, please visitsummitbusinessmedia.com.
Posted in Taxation | Tagged: Employment, income tax, insurance, Summit Business Media, Tax credit, Tax law, Thomas Jefferson School of Law, United States | Leave a Comment »
Posted by William Byrnes on March 10, 2011
One of the U.S.’s oldest life settlement companies, publically traded Life Partners Holdings, Inc., is being investigated by the SEC for falsifying life span reports used to sell the company’s life settlement products. Falsified life spans can leave investors on the hook for additional premiums over the insureds’ remaining years when insureds outlive the firm’s life-span estimates.
The question for Life Partners Holdings shareholders and customers is whether the Life Partners investigation will go the way of Mutual Benefits Corp, a life settlement company that sold fractional interests in life insurance policies. Mutual Benefits was the subject of a similar SEC investigation concerning falsified life expectancies that ultimately led to the company’s collapse. Could Life Partners be next?
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).
Posted in Insurance | Tagged: Business, insurance, Insurance policy, Life expectancy, life insurance, Life settlement, U.S. Securities and Exchange Commission, Wall Street Journal | Leave a Comment »
Posted by William Byrnes on March 8, 2011
A Limited Liability Company (LLC) is a business structure allowed by state statute. LLCs are popular because, similar to a corporation, owners have limited personal liability for the debts and actions of the LLC. Other features of LLCs are more like a partnership, providing management flexibility and the benefit of pass-through taxation.
Owners of an LLC are called members. Since most states do not restrict ownership, members may include individuals, corporations, other LLCs and foreign entities. There is no maximum number of members. Most states also permit “single member” LLCs, those having only one owner.
A few types of businesses generally cannot be LLCs, such as banks and insurance companies. Check your state’s requirements and the federal tax regulations for further information. There are special rules for foreign LLCs.
Read the analysis at AdvisorFYI
Posted in Taxation | Tagged: Business, Business Formation, Corporation, insurance, Limited liability company, Small business, Start Up, United States | Leave a Comment »
Posted by William Byrnes on March 7, 2011
Although supervising the cost of insurance embedded in life insurance premiums has historically been the domain of state insurance commissioners, the U.S. District Court for the Central District of California has intervened in one recent case, ruling on January 19 that Conseco Life Insurance Co. cannot increase the premiums it charges 50,000 of its existing policyholders.
The premium increase was part of a plan by Conseco to reduce its long-term losses. Rather than post reserves, Conseco looked for a way to reduce its future liabilities by $173 million. They targeted two blocks of universal life policies that had lower than expected lapse rates, using a pricing formula that would explode the cost of insurance charged in the policies’ 21st year after issuance. Customers who’d held the affected policies longest would have seen their premiums increase in 2010 or 2011. 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 another carrier lawsuit in Advisor’s Journal, see Carriers Targeted by Suit Over Losses on Madoff Investments (CC 11-06).
For in-depth analysis of the income taxation of life insurance, see Advisor’s Main Library: A—Definition of “Life Insurance” For Income Tax Purposes.
Posted in Insurance | Tagged: Business, Conseco, Financial services, income tax, insurance, life insurance, United States, Universal life insurance | Leave a Comment »
Posted by William Byrnes on March 4, 2011
The Congressional Research Service last week released a publication describing the employer healthcare mandate and penalties for large employers under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010. Although penalties under the Health Care Act will not be applicable until 2014, the Act brings about a sea of change in the employer’ role in employee health insurance that requires significant present preparation.
Contrary to popular miscomprehensions about the Act, it does not mandate that employers provide their employees with health insurance; however, the Act does incentivize large employers to do so by penalizing them if their employees are not covered to a minimum level by employer-provided health insurance. 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).
Posted in Uncategorized | Tagged: Congressional Research Service, Employment, Health care, Health Care and Education Reconciliation Act of 2010, healthinsurance, insurance, Patient Protection and Affordable Care Act, United States | Leave a Comment »
Posted by William Byrnes on March 3, 2011
Late last year the IRS published proposed regulations regarding the classification for Federal tax purposes a domestic series limited liability company (LLC), a domestic cell company, or a foreign series or cell that conducts an insurance business.
A number of States, such as Delaware, have enacted statutes providing for the creation of entities that may establish series, including limited liability companies (series LLCs). In general, most series LLC statutes provide that a limited liability company may establish separate series.
Although the series LLC generally are not treated as separate entities for State law purposes, the treatment of rights and obligations is similar to separate entities, creating in essence “associated members”. Members’ association with one or more particular series is comparable to direct ownership by the members in such series, in that their rights, duties, and powers with respect to the series are direct and specifically identified. If the conditions enumerated in the relevant statute are satisfied, the debts, liabilities, and obligations of one series generally are enforceable only against the assets of that series and not against assets of other series or of the series LLC.
Read the analysis at AdvisorFYI
Posted in Taxation | Tagged: Business, Delaware, insurance, Internal Revenue Service, IRS, Limited liability company, Small business, United States | Leave a Comment »
Posted by William Byrnes on February 28, 2011
Federal interference in the regulation of the insurance industry could be around the corner, but the states are not going to cede their authority without a fight.
State legislators fear that “important funds and jobs could be lost if Congress authorizes a federal insurance charter and creates a new bureaucracy to regulate insurance.” According to a letter sent by NCOIL (The National Conference of Insurance Legislators) to every member of the 112th Congress, a federal insurance charter could cost states as much as $16 billion in revenue annually—representing lost fees and taxes generated for the states by insurance business. ….
Although the FIO itself is not given regulatory authority by the Wall Street Reform Act, the studies mandated by the Act may signal that the Feds are interested in expanding their reach into the insurance industry. And, it would be naïve to think that the FIO studies will find that federal regulation of insurance companies is absolutely unnecessary—given the role of insurance companies like AIG in the financial crisis. 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 the Federal Insurance Office in Advisor’s Journal, see The Federal Insurance Office (CC 10-55).
Posted in Insurance | Tagged: Financial services, insurance, Insurance policy, Regulation, Regulators | Leave a Comment »
Posted by William Byrnes on February 25, 2011
The Internal Revenue Code provides an exclusion from income for the first $50,000 of group-term life insurance coverage provided under a policy carried directly or indirectly by an employer. [1] Thus, there are no tax consequences to the individual if the total amount of such policies does not exceed $50,000. However, the imputed cost of coverage in excess of $50,000 must be included in income to the individual, using the IRS Premium Table, [2] and are subject to social security and Medicare taxes.
A taxable fringe benefit arises if coverage exceeds $50,000 and the policy is considered carried directly or indirectly by the employer. A policy is considered carried directly or indirectly by the employer if:
- The employer pays any cost of the life insurance, or
- The employer arranges for the premium payments and the premiums paid by at least one employee subsidize those paid by at least one other employee (known as the “straddle” rule).
A policy that is not considered carried directly or indirectly by the employer has no tax consequences to the employee. Also, because the employees are paying the cost and the employer is not redistributing the cost of the premiums through an insurance system, the employer has no reporting requirements.
Read the analysis at AdvisorFYI
Posted in Insurance | Tagged: Employee benefit, Employment, Federal Insurance Contributions Act tax, insurance, Internal Revenue Service, Policy, tax, term life insurance | Leave a Comment »
Posted by William Byrnes on February 18, 2011
A recent Tax Court case demonstrates the severe tax consequences for an employee when a welfare-benefit plan ceases to qualify under section 419A of the Tax Code. Section 419A governs “qualified asset accounts,” which are employer provided welfare-benefits plans that set aside funds for (1) disability benefits, (2) medical benefits, (3) severance benefits, or (4) life insurance benefits. In general, contributions by an employer to a welfare-benefit plan are tax deductible by the employer if they are ordinary and necessary business expenses. In the case, part of the funds contributed to the plan were used to buy life insurance coverage for the principal and other employees, with the rest of the funds constituting excess contributions.
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).
Posted in Retirement Planning | Tagged: Employee benefit, Employment, insurance, life insurance, tax, Tax deduction, United States, Welfare | Leave a Comment »
Posted by William Byrnes on February 17, 2011
A recent Delaware Court of Chancery decision illustrates the severe consequences that can befall an insurance agent trustee who violates his or her duties to the trust’s beneficiaries. The agent in the case agreed to serve as trustee of a client’s life insurance trust.
The client, a Father, had a falling out with his son over the Father’s marriage to a woman 17 years his junior. Nevertheless, the Father and his second wife formed a trust for the benefit of the son. The couple asked their family insurance agent to serve as trustee of the trust. The trust purchased a second-to-die life insurance policy on their lives. Although the trust was irrevocable, the Father ad young wife asked the trustee to revoke the trust only three years after it was formed. The trustee intelligently refused to revoke the trust, but did agree to loan the policy’s cash value to the couple.
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).
Posted in Trusts | Tagged: Business, Delaware Court of Chancery, Financial services, Fred Wilpon, insurance, Lawsuit, Trustee, United States | Leave a Comment »
Posted by William Byrnes on February 14, 2011
Cost competitiveness of life insurance policies is an obvious determinant of suitability. Keeping costs low is critical because every dollar spent on expenses is one less dollar available to purchase more death benefit. In fact, a recent study by Morningstar revealed that “Low fees are likely to be the best predictor of a mutual fund’s future success,” and the same certainly holds true for life insurance products.
While different insurers refer to different policy expenses in different ways, all policy expenses in all life insurance policies fall into the following four categories: 1) cost of insurance charges (COIs), 2) fixed administration expenses (FAEs), 3) cash-value-based “wrap fees” (e.g., M&Es), and 4) premium loads. Each type of policy expense and its role and relevance in pricing and suitability is discussed in the complete analysis 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 product suitability in Advisor’s Journal, see Life Insurance Product Suitability (CC 10-90) and Financial Strength and Claims-Paying Ability (CC 10-115).
We invite your questions and comments by posting them or by calling the Panel of Experts.
Posted in Insurance | Tagged: Business, Financial services, insurance, Insurance policy, life insurance, Morningstar, Policy, United States | Leave a Comment »
Posted by William Byrnes on February 1, 2011
Robert Fier was employed as a gaming machine operator in Las Vegas, Nevada. He worked his way up through the company to be promoted to a managerial position. During this time, Fier enrolled in an insurance program offered by the company to managers. The enrollment entitled Fier to two insurance policies, a Long Term Disability Policy and a Group Life and Accidental Death and Dismemberment Insurance Policy.
The long term disability plan stated, in essence, Fier was entitled to payments upon the occurrence of disability if he earned less than 80% of what he had before the accident. Also, the policy payments terminated if he starting making over 80% of what he had before the accident. The group life and accidental death and dismemberment policy will be discussed in more detail below.
After five years with the company, Mr. Fier was shot in the throat during a hunting accident. The individual who shot Fier on that hunting trip (in the great state of Utah) was evidently intoxicated. The accident left Fier a quadriplegic for life.
Mr. Fier was then offered a position at the same company that was designed specifically to fit his new disability. The company continued to pay Fier the same amount as it had before the accident. However, after four more years, the company assigned Fier to a new position and lowered his salary by $20,000 annually. Mr. Fier then filed a claim under his long term disability policy. To read this article excerpted above, please access AdvisorFYI
Posted in Uncategorized | Tagged: Accidental death and dismemberment insurance, Disability, Disability insurance, Financial services, insurance, Insurance policy | Leave a Comment »
Posted by William Byrnes on January 28, 2011
The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 are generally known as the national health care legislation. The new laws created a number of changes in the health care insurance system, in general. These changes will be discussed throughout the week, as presented below.
Under the new law, each individual is required to have “minimum essential coverage” for each month of the year starting in 2014. “Minimum essential coverage” means whichever; a government sponsored program such as Medicare, Medicaid, and TRICARE; an employer sponsored plan; plans in the individual market; and grandfathered health care plans.
For those individuals who choose not to obtain minimum essential coverage, imposed is a penalty to be included in the taxpayer’s annual return. The penalty applies to each month where the individual is not covered equal to an amount of either 1/12 of the average cost of “bronze” level coverage or the greater of an annual set dollar amount, which is pegged at $695 for taxable years 2016 and beyond, or a set percentage of the taxpayer’s household income, currently 2.5 percent beginning after 2016. (The Legislation includes a phase in schedule for both the flat dollar amount and the percentage of income. The flat dollar amount is $95 for 2014, $325 for 2015. The percentage of household income is 1 percent for 2014 and 2 percent for 2015.) To read this article excerpted above, please access AdvisorFYI
Posted in Reporting | Tagged: Health care, Health care reform, insurance, Medicaid, Medicare, Patient Protection and Affordable Care Act, Republican, United States | Leave a Comment »
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/
Posted in Insurance | Tagged: Agents and Marketers, Big Apple, Business, Financial services, healthinsurance, insurance, Insurance policy, United States | Leave a Comment »
Posted by William Byrnes on January 19, 2011
Life insurance policies are granted preferred tax treatment, with death benefits distributable tax-free to beneficiaries, but some distributions from a life insurance policy are subject to income tax. For instance, although inside buildup of policy value occurs tax-free, when that value is tapped through policy withdrawals, the policy owner may be taxed on the distribution. Current income taxation can also result when a policy is cancelled or otherwise terminated when a policy loan is outstanding, as illustrated by a recent Tax Court case.
For previous coverage of life insurance developments in Advisor’s Journal, see Life Insurance: Iron-Clad Asset Protection or Chink in the Armor? (CC 10-114) and IRS Blesses Life Insurance Policy Held by Profit-Sharing Plan (CC 10-96). 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).
For in-depth analysis of policy loans and withdrawals, see Advisor’s Main Library: Section 19.1 G—Tax Treatment Of Policy Loan Interest and Section 19.1 C—Taxation of Amounts Payable During Life.
Posted in Insurance, Taxation | Tagged: insurance, Insurance policy, Internal Revenue Service, life insurance, Policy, tax, term life insurance, United States | Leave a Comment »
Posted by William Byrnes on January 8, 2011
The Court of Appeals of New York—the state’s highest court— issued a decision as to whether New York’s insurable interest law was violated when an insured purchased a life insurance policy and immediately assigned the policy to a third party who did not have an insurable interest in the insured’s life.
The case involves an attorney who purchased $56.2 million in insurance coverage on his own life at the prompting of a STOLI promoter. The policies were held by life insurance trusts that initially named the attorney’s adult children as beneficiaries of the trust, but the children immediately assigned their interests in the trusts to third party investors. Investors paid all premiums.
When the attorney died, his wife refused to provide his death certificate to the investors. She then sued the insurance companies and investors in federal district court, alleging that, because the policies were issued in violation of New York’s insurable interest law, policy proceeds should be paid to her instead of the investors. 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.
Posted in Insurance | Tagged: Insurable interest, insurance, Insurance policy, Investor, life insurance, New York, New York Court of Appeals, Stranger-originated life insurance | Leave a Comment »
Posted by William Byrnes on January 7, 2011
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.
Posted in Insurance | Tagged: Agent Resources, Business, Customer, Financial services, healthinsurance, insurance, Law of agency, Patient Protection and Affordable Care Act | Leave a Comment »
Posted by William Byrnes on January 6, 2011
Life insurance is often touted as an iron-clad asset protection vehicle since many states exempt life insurance policies from attachment by an insured’s creditors. Life insurance can even provide limited asset protection in bankruptcy.
But life insurance is not a foolproof method of protecting family assets from all creditors, as illustrated by a recent U.S. District Court case. In that case, an insured sued his insurance company and the IRS after the insurance company paid over the cash value of a life insurance policy to the IRS to satisfy a tax levy. The insured’s wife and daughter were the beneficiaries of the life insurance policy, which would have shielded the policy from creditors in many states, including his. 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).
For previous coverage of asset protection in Advisor’s Journal, see Domestic Asset Protection Trusts: New Chart Ranks the States (CC 10-30).
For in-depth analysis of asset protection, see Advisor’s Main Library: G—Domestic Asset Protection Trusts.
We invite your questions and comments by posting them below or by calling the Panel of Experts.
Posted in Insurance | Tagged: Asset, Business, Financial services, insurance, Insurance policy, Life, life insurance, United States | Leave a Comment »
Posted by William Byrnes on January 4, 2011
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Why is this Topic Important to Wealth Managers? Reviews the National Health Care Legislation’s revenues and expense provisions. Discusses one area in particular where high income earners are subject to additional tax liability provided by the new law.
There are many new questions being raised by the national health care legislation that was passed into law earlier this year. The Patient Protection and Affordable Care Act, [1] and the, Health Care and Education Reconciliation Act of 2010,[2] created a number of significant changes to the landscape of the health care system in the United States. The total cost of the program, is estimated at approximately $356 Billion dollars over the ten year period from 2010-2019. [3]However, revenue projections from taxes incorporated into the legislation are actually estimated upwards of $437 Billion dollars over that same ten year period. [4]
Now that we can reasonably be assured the health care bill’s cost is properly allocated and encumbered, let’s see how and where the revenue generating provisions will affect American taxpayers.
The largest single line item that will contribute to the funding of the health care legislation is a new surtax for Medicare. Estimates that over $200 billion will be raised over 10 years, is a burden carried by only a small percentage of high income taxpayers, estimated at approximately the top 2% of all taxpayers, or those taxpayers who will earn more than $200,000 or $250,000 filing jointly. [5] This means approximately 98% of the population will not be required to contribute to the new surtax with regards to Medicare. To read this article excerpted above, please access www.AdvisorFYI.com
Posted in Taxation | Tagged: Health care, Health Care and Education Reconciliation Act of 2010, Health care reform, insurance, Medicare, Patient Protection and Affordable Care Act | Leave a Comment »
Posted by William Byrnes on December 31, 2010
An employer who does not want to, or cannot, institute a qualified pension or profit-sharing plan, or who does not want to extend benefits to all of its full-time employees, can use a “Section 162 plan” to meet its executive compensation needs. A Section 162 plan leverages life insurance to provide supplemental compensation to select employees while also allowing the employer to take an income tax deduction for the premium payments.
In a Section 162 plan, an employer applies for, and pays premiums on, a life insurance policy on its employee’s life. The employee, however, owns the policy and has the right to appoint beneficiaries; the employer does not take an interest in the policy’s death benefit.
As an example of Section 162 plan and its tax advantages, … 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).
For in-depth analysis of Section 162 plans, see Advisor’s Main Library: Section 15 C—Executive Bonus – I.R.C. �162 Plan
We invite your questions and comments by posting them below or by calling the Panel of Experts.
Posted in Retirement Planning, Uncategorized | Tagged: Business, Compensation and Benefits, Employment, Executive pay, Human Resources, insurance, Profit sharing, Tax advantage | Leave a Comment »
Posted by William Byrnes on December 28, 2010
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Why is this Topic Important to Wealth Managers? Americans are increasingly using their personal residence as their office. This trend has picked up much steam since the financial crisis began. Businesses cut costs during this period by not just allowing, but requiring, employees to telecommute. In fact, government, including the IRS, has also jumped on the bandwagon.
Yesterday we opened the discussion of when may a taxpayer be allowed to deduct a business expense from his gross income. That article noted that Congress grants the authority to the Treasury department to write corresponding “Regulations” to address the administration and enforcement surrounding the ability of taxpayers to take such deductions allowed by the Code. Treasury, being the Internal Revenue Service in this case, promulgated such regulations for Section 162 to guide taxpayers through its morass, and provide some example scenarios and the IRS’ application of the Code to those scenarios.
By example, Treasury’s Regulation for Section 162 states that: “Among the items included in business expenses are management expenses, commissions …, labor, supplies, incidental repairs, operating expenses of automobiles used in the trade or business, traveling expenses while away from home solely in the pursuit of a trade or business …, advertising and other selling expenses, together with insurance premiums against fire, storm, theft, accident, or other similar losses in the case of a business, and rental for the use of business property.”
Home Office Deduction
To read this article excerpted above, please access www.AdvisorFX.com
Posted in Taxation | Tagged: Business, Expense, Home Office, insurance, Internal Revenue Code, Internal Revenue Service, tax, Tax deduction | Leave a Comment »
Posted by William Byrnes on December 17, 2010
Much has been written about financial reform in the popular press. But where can insurance professionals find specific guidance on how the “Dodd-Frank Wall Street Reform and Consumer Protection Act” (“the D-F Bill”) affects them?
For the insurance industry, the focus of the 2,000-page D-F Bill is Title V, which creates a Federal Insurance Office (FIO) within the U.S. Treasury. Under Title V, the Secretary of the Treasury is given rulemaking authority to implement and delegate the new duties of the FIO. The D-F Bill also establishes that surplus and reinsurance insurers will be subject to the regulation of their “domicile” instead of having to comply with multiple state requirements.
The FREE white paper we have prepared covers all of this—and more—in clear and concise detail. Please CLICK HERE to access and download your copy from AdvisorFX—absoluetely FREE
Posted in Insurance | Tagged: Business, Dodd–Frank Wall Street Reform and Consumer Protection Act, Financial services, Government, insurance, Regulators, U.S. Treasury, United States Department of the Treasury | Leave a Comment »
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.
Posted in Insurance | Tagged: Agent Resources, Agents and Marketers, Business, Customer, Financial services, insurance, Law of agency, Life | Leave a Comment »
Posted by William Byrnes on December 15, 2010
In a contentious move, the National Conference of Insurance Legislators (NCOIL) executive committee voted unanimously to adopt the Life Insurance Consumer Disclosure Model Act, (Model Act), which requires life insurance carriers to notify policy owners of settlement options when the policy owner is considering surrendering the policy or when the policy is set to lapse.
The life settlement industry is giddy over the Model Act—which should boost their business. But the insurance industry outlook on the Act is not so rosy—settlement essentially ensures that policies will not lapse before death benefits are paid and that many policy owners will choose settlement over carrier options like accelerated death benefits and policy surrender. Not all policy owners have a right to disclosure about settlements under the Model Act. The disclosure requirement applies only where the insured is sixty years old or older or “is known by the insurer to be terminally ill or chronically ill” and … 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).
For previous coverage of life insurance settlement options in Advisor’s Journal, see Don’t Overlook Beneficiary Designations and Settlement Options (CC 09-28)
We invite your questions and comments by posting them or by calling the Panel of Experts.
Posted in Insurance | Tagged: Business, Financial services, insurance, Insurance policy, life insurance, Life settlement, Terminal illness, United States | Leave a Comment »
Posted by William Byrnes on December 14, 2010
Insurance companies have been getting a lot of press the last few years. But this time, it’s not a story about a health insurance carrier denying a father-of-five cancer patient’s potentially life-saving treatment. It’s a Los Angeles Times story pillorying life insurance company American General and several other carriers for rescinding life insurance policies after the insured’s death.
According to the Los Angeles Times article, $372 million in life insurance benefits were denied beneficiaries in 2009, doubling over the past decade even as life insurance policy sales have decreased.
The article breaks down the denied death benefits by insurance company, finding that some carriers deny death benefits more than others. The prime target …… 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).
For in-depth analysis of a life insurance company’s right to rescind a policy after issuance, see Advisor’s Main Library: Section 20 C—Payment Of Proceeds.
We invite your questions and comments by posting them below or by calling the Panel of Experts.
Posted in Insurance | Tagged: Business, Financial services, insurance, Insurance policy, life insurance, Los Angeles Times, term life insurance, United States | Leave a Comment »
Posted by William Byrnes on December 10, 2010
For as long as life insurance has existed, con artists and murderers have sought payouts from policies on the lives of their victims. Tomisue Hilbert, wife of insurance giant Conseco, Inc.’s founder Stephen Hilbert, suspects that her mother, Suzy Tomlinson, was a victim of one such schemer.
She looks to hold AIG responsible for her mother’s untimely death, believing that a high-value policy issued by American General (an AIG subsidiary) on her mother’s life was the impetus behind a scheme that ended with her mother’s death. The life insurance policy at issue in the case is a $15 million policy on Tomlinson’s life naming Indiana businessman J.B. Carlson as its beneficiary. Policy premiums were paid with premium financing.
On September 29, 2008, Suzy Tomlinson drowned in her bathtub, fully clothed, after a night of drinking. Tomlinson’s death occurred right before a $1.27 million payment was due on the premium finance loan. Tomisue Hilbert’s lawsuit notes the fortuitous timing—for Carlson—of her mother’s death, Carlson’s debts of $5.9 million and the fact that Carlson may have been the last person to see her mother alive.
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).
Posted in Insurance | Tagged: American International Group, Conseco, Indiana, insurance, Insurance policy, life insurance, Premium Financing, United States | Leave a Comment »
Posted by William Byrnes on November 30, 2010
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As we have discussed in previous blogticles, captive insurance can be a viable method to more efficiently protect against certain risks under various circumstances. For discussion on these topics please see our blogticles on AdvisorFYI from the week of August 30th, Monday through Wednesday, Alternative Risk Transfer Basics, Risk and Self-Insurance, andCaptive Insurance Company Introduction.
In addition, we have discussed in previous blogticles the ability to deduct prepaid expenses for certain items, both from an accrual basis and cash receipts and disbursements method taxpayer approach. One such class of deductions that is generally allowable is, “insurance premiums against fire, storm, theft, accident, or other similar losses in the case of a business, and rental for the use of business property.”
See generally our blogticles from November entitled, Year End Tax Planning: Pre-Paid Insurance Expense For Accrual Accounting Taxpayers, and Year End Tax Planning: Pre-Paid Expenses For Cash Accounting Taxpayers.
Read this entire set of articles starting at AdvisorFYI.
Posted in Insurance, Taxation | Tagged: Alternative Risk Transfer, Business, Captives, Financial services, Health insurance, insurance, risk management, Self-Insurance | 1 Comment »
Posted by William Byrnes on November 29, 2010
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Why is this Topic Important to Wealth Managers? Provides an update for wealth managers into the status of employer owned life insurance. Discusses two notable exceptions to the general rule including income from the death benefits of an insurance policy when paid to a trade or business.
In 2006, Congress added Section 101(j) to the Internal Revenue Code which addresses the taxation of employer owned life insurance (EOLI) under Section 863 of the Pension Protection Act. The law departed from the traditional status of life insurance proceeds payable by death of the insured as excluded from gross income. [1]
Section 101(j) essentially taxes life insurance proceeds payable at death, in the amount over contributions or basis, when the policy is owned by a trade or business, where the employer is the beneficiary, and the employee is the insured. [2] There are a certain number of exceptions where the benefit payable to the beneficiary will remain excludable. [3] In all of the exceptional situations notice and consent requirements must be met. [4] For a discussion on the notice requirements specifically, or Section 101(j) generally, please see AdvisorFX: Death Benefits Under Employer Owned Life Insurance Contracts. [5]
Since the enactment of law, the Service has issued guidance in regards to what transactions may be allowed under section 101(j). That guidance came in part, last year when the Service published Notice 2009-48.
How do some of the exceptions work in consideration of the guidance published in Notice 2009-48? Read our entire analysis and citations at AdvisorFYI.
Posted in Insurance, Taxation | Tagged: Business, employer owned life insurance, Financial services, insurance, Insurance policy, Internal Revenue Code, life insurance, term life insurance, United States | Leave a Comment »
Posted by William Byrnes on November 19, 2010
Why is this Topic Important to Wealth Managers? Section 1035 exchanges are known for deferral of a taxable gain through a step-up in basis into a new contract. The tax benefits granted by Congress are certainly advantageous, however, in an uncertain economy Section1035 exchanges also offer wealth managers the opportunity for new business. Because of the potential little to no out-of-pocket expense associated with these transactions, many wealth mangers are currently implementing this advantageous exchange during sluggish times.
It is often the case that policy owners’ expectations change during the life of a contract. It makes sense to re-evaluate objectives to ensure they’re still aligned with client goals. Section 1035 exchanges are one area where this practice is commonplace.
Generally, Congress allows owners of life insurance and annuity contracts to exchange that contract for another, similar or related insurance or annuity contract without recognizing any unrealized gain which may have accrued within the policy, so long as the insured stays the same.
Read the entire article at AdvisorFYI.
Posted in Insurance | Tagged: Business, Congress, Financial services, insurance, Life annuity, life insurance, United States, United States Congress | Leave a Comment »
Posted by William Byrnes on November 17, 2010
Why is this Topic Important to Wealth Managers? Presents the general treatment of life insurance purchased through qualified pension plans. Discusses a common scenario where life insurance premiums may be deductible by an employer aw well as the consequential income tax effect on plan participants.
Suppose your client is the sole shareholder and president of a closely held corporation. The business generates significant positive income and cash-flow on a steady basis. Assume the client himself may have an insurance need without the funds personally to cover the obligation. Assuming further the business has a qualified pension (defined contribution or defined benefit) plan, one consideration may be to purchase life insurance through the qualified pension plan. [1] Assume this option, up to an insurable interest limit, was also offered to all employees participating in the qualified plan.
Since employer contributions to qualified plans are sometimes deductible, amount used to purchase life insurance may be also, subject to the incidental limitation. [2] First though, “[t]o qualify for deduction as a contribution to a qualified plan, the employer’s contribution must first qualify as an ordinary and necessary business expense within the limits of reasonable compensation.” [3] As a general rule, so long as the amount of the insurance is no more than 25% of the total cost of the plan the amount may be deducted as an incidental benefit to the plan.
Read the entire blogticle at AdvisorFYI.
Posted in Insurance, Uncategorized | Tagged: Business, Cash flow, Corporation, Employment, income tax, insurance, life insurance, Pension | Leave a Comment »
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.
Posted in Insurance | Tagged: Agents and Marketers, Business, Financial services, insurance, Insurance policy, life insurance, term life insurance, United States | Leave a Comment »
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.
Posted in Estate Tax | Tagged: Agents and Marketers, Business, Family business, Financial services, insurance, Life, life insurance, Succession planning | Leave a Comment »
Posted by William Byrnes on October 25, 2010
Valuing a donated life insurance policy can be tricky when taking a charitable contribution deduction. Detailed IRS guidance on insurance policy valuation has been confined to other scenarios, such as where a policy is sold or included in an estate. Also complicating policy donation is the requirement that a qualified appraisal of the donated policy be included with the taxpayer’s return.
For in-depth analysis of the topic of charitable giving, see Advisor’s Main Library Section 1 F—Estate Planning Through Charitable Contributions
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 at AdvisorFYI, or by calling the Panel of Experts.
Posted in Estate Tax, Insurance | Tagged: Charitable contribution, Donation, insurance, Insurance policy, Internal Revenue Service, life insurance, term life insurance, Whole life insurance | Leave a Comment »
Posted by William Byrnes on October 21, 2010
Why is this Topic Important to Wealth Managers? Discusses the general market conditions of life settlements. Also provides reasons why some policy holders may consider selling their interests.
As discussed earlier this week, a traditional life-settlement transaction consists of an third party purchasing an unknown individual’s life insurance policy for consideration. The purchaser continues to pay the premiums until a death benefit is collected, the contract is sold to another individual or business, or is surrendered.
The Wall Street Journal attributes the creation of the industry “back to the 1980s, when [terminally ill] patients sold their policies to raise cash for medical treatments.” The Journal also notes, the “market boomed earlier this decade, as hedge funds eager for offbeat alternative investments piled in.”
Since the decline in overall macroeconomic market conditions, “the total face value of policies purchased in the secondary market fell to $7 billion in 2009 from $13 billion in 2008”. “Prices for policies, meanwhile, fell to an average of 13% of the death benefit in 2009 from 21% in 2006.” Nevertheless, industry experts are expecting a rise again in total market figures by the end of 2010. It is not surprising given the SEC’s new enforcement efforts discussed below.
For the remainder of the article see AdvisorFYI.
Posted in Insurance | Tagged: Alternative investment, Business, Financial services, Hedge fund, insurance, Insurance policy, Life settlement, Secondary market | Leave a Comment »
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….
Posted in Insurance, Taxation, Uncategorized | Tagged: Agents and Marketers, Business, Cash value, Contract, Financial services, insurance, Insurance policy, tax | Leave a Comment »
Posted by William Byrnes on October 19, 2010
Why is this Topic Important to Wealth Managers? Provides general taxation of life insurance contracts that are surrendered, sold or exchanged. Gives examples that are easy to follow and provides an educational foundation for real-world gain determinations.
This is a two-part series in relation to the taxation of life insurance contracts once it is surrendered, sold or exchanged to a third party. The first blogticle will examine the issue from the seller or insured’s perspective, and tomorrow’s blogticle will discuss the matter from the purchaser’s prospective.
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 the sale or exchange of the contract, i.e., surrendered or sold.
What are the tax implications if the life policy is surrendered?
As a starting point, gross income includes all income from whatever source derived including (but not limited to) income from life insurance contracts (unless the income is otherwise excluded by law). [1]
In general, a life insurance contract that is not collected as an annuity is included in gross income in the amount received over the total premiums or consideration paid. [2] “The surrender of a life insurance contract does not, however, produce a capital gain.” [3] The amount collected over basis is therefore ordinary income.
To read the remainder of this article please see AdvisorFYI.
Posted in Insurance, Taxation | Tagged: Business, Cash value, Contract, Financial services, insurance, Insurance policy, tax, United States | Leave a Comment »
Posted by William Byrnes on October 12, 2010
Why is this Topic Important to Wealth Managers? Provides specific information in regards to costs relating to the formation of an insurance company. Discusses multiple domicile options and how they relate to each other.
Wealth managers may be interested to know generally what costs are involved to form and manage a captive insurance company in different jurisdictions. Take for example Vermont. It is known as the “Captive Capital” here in the States, and for good reason, Vermont has licensed over 900 captives at last count.[1]
The licensing fees in Vermont total $4,800 (in the first year and only $300 a year thereafter.) [2] However, there are a couple of downsides to the preliminarily greener pastures. First, Vermont requires initial capitalization of a “pure”, which includes a traditional single parent, captive of $250,000. [3] Secondly, Vermont requires the captive to pay minimum premium tax of $7,500 which has an underwriting level of approximately around $2 million dollars at a rate of 0.38%. [4]
As a general rule, the formation and annual expenses, including premium taxes, of captive insurance companies will be lower in most offshore jurisdictions rather than domestic domiciles.
Read on about A Dollar Saved…Captive Insurance Company Costs
Posted in Insurance | Tagged: Business, Captive insurance, Captives, Financial services, insurance, risk management, United States, Vermont | Leave a Comment »
Posted by William Byrnes on October 11, 2010
Why is this Topic Important to Wealth Managers? Provides insight into relevant taxation issues regarding the ownership of a foreign insurance company, premium payments made to a foreign insurance company, and foreign insurance company income taxation. Discusses information wealth managers may find relevant in regards to advanced family and business estate plans.
What are the U.S. tax implications, generally, for a United States Corporation that owns a foreign insurance company?
To begin, a well known rule is that premiums paid to a foreign insurance company are subject to a federal income premium tax. The tax is due even though the U.S. parent may own the foreign insurance company, either in part or in full. The tax is remitted by the premium payor who “must file Form 720 to pay the tax at the time of the premium payment.”[1]
For casualty insurance policies the tax is 4% of the total premium payment to a foreign insurer and for life insurance and annuity contracts the tax is 1% of the premium paid.[2] The tax only applies to premium payments to a foreign insurer.
If a foreign company carrying on an insurance business within the United States qualifies as a life or casualty insurer under the Code, “if it were [otherwise] a domestic corporation,” then the company is “taxable under such part on its income effectively connected with its conduct of any trade or business within the United States.” [3]
To determine what income then is effectively connected with a trade or business within the United States, one must know what a trade or business within the United States means. “Neither the Code nor the regulations fully define the term ‘trade or business within the United States.’ ” [4] Most “cases hold that profit oriented activities in the United States, whether carried on by the taxpayer directly or through agents, are a trade or business if they are regular, substantial, and continuous.” [5] Additionally, an insurance company “makes contracts over a period of years”, which leads one to believe the issuance of insurance contracts on persons or activities in the United States is continuous. [6]
Read on about Foreign Insurance Company Taxation
Posted in Insurance, Tax Policy, Taxation | Tagged: Agent Resources, Business, Business and Economy, Carriers, Financial services, insurance, Property and Casualty, United States | Leave a Comment »
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
Posted in Tax Policy | Tagged: Agents and Marketers, Business, Business and Economy, Financial services, insurance, Internal Revenue Code, Life, life insurance | Leave a Comment »
Posted by William Byrnes on October 3, 2010
An insurer recently won a major victory when the U.S. District Court for Delaware voided a life insurance policy that was purchased as part of a STOLI transaction. The case—Principal Life Insurance Co. v. Lawrence Rucker 2007 Insurance Trust—is significant because the court voided the policy for lack of an insurable interest based on the finding of insured’s intent to sell, even though the insured had not identified a particular purchaser for the policy at the time it was issued.
For the complete analysis of this development by our Experts Robert Bloink and William Byrnes, please read the article via your AdvisorFX subscription atRecent STOLI Case Is a Big Win for Insurers
For in-depth analysis of STOLIs, see Advisor’s Main Library Section 19.6 Life Settlements B—The Life Settlement Industry: Stranger-Originated Life Insurance (STOLI).
For in-depth analysis of the topic of insurable interest, see Advisor’s Main Library Section 20 Beneficiaries And Settlement Options B—Insurable Interest: New York Insurance Department Invalidates STOLI Scheme For Lack of Insurable Interest
After reading the analysis, we invite your questions and comments by posting them below, or by calling the Panel of Experts.
Posted in Uncategorized | Tagged: Business, Financial services, insurance, Insurance policy, Life, life insurance, Life settlement, Stranger-originated life insurance | Leave a Comment »
Posted by William Byrnes on October 2, 2010
Author: Benjamin S. Terner
Why is this Topic Important to Wealth Managers? Provides an overview of one useful tool for affluent clients. Presents offshore private placement life insurance considerations wealth managers may consider when discussing this topic with clients.
As a brief review, private placement variable universal life insurance may allow individuals “the ability to select asset management beyond the limited asset-management choices offered in retail variable life insurance products.”
Generally speaking, one benefit derived from the use of private placement policies “in the high-net-worth market” is that the policy is essentially an “investment vehicle, optimally used for the most tax-inefficient asset classes in an investor’s portfolio.” Therefore, some common goals for wealth managers structuring transactions as private placement life contracts: “are to take advantage of the income tax and possible estate tax savings, to maximize investment choices, and to incur as little cost as possible in doing so.”
Please see the AdvisorFYI blog for the entire blogticle.
Posted in Insurance | Tagged: Asset, Business, Financial services, insurance, Investment, life insurance, Private placement, Private placement life insurance | Leave a Comment »
Posted by William Byrnes on September 30, 2010
President Obama signed the Small Business Jobs and Credit Act of 2010, H.R. 5297, on Monday, September 27, establishing an allowance for partial annuitizations of annuity contracts from January 1, 2011. In the coming weeks, the Advisors Journal will include in-depth examinations of the provisions of the Small Business Act that are of the most interest to advisors and insurance producers, such as the partial annuitization of annuity contracts and the Roth Conversion Extension to Employer Accounts.
In this AdvisorFX exclusive analysis, we summarize the impact of the Act’s other major provisions. Please read the article via your AdvisorFX subscription at AdvisorFX (or sign up for a free 30 day trial).
Posted in Tax Policy, Taxation | Tagged: Barack Obama, Business, insurance, Life annuity, Small business, Small Business Administration, Small Business Jobs, United States | Leave a Comment »
Posted by William Byrnes on September 30, 2010
The business owner who supports his parent, or an adult family member, may be missing an opportunity to lower his tax burden. In the context of a properly established insurance funded buy-sell agreement, small business clients have an opportunity to provide an adult family member with a fixed income while also protecting the client’s interest in the business and avoiding adverse tax consequences.
Read the analysis by our experts Robert Bloink and William Byrnes located at AdvisorFX Journal The Planning Opportunity Presented When a Client Supports a Parent
Posted in Uncategorized | Tagged: Business, Company, Fixed income, insurance, Magazines and E-zines, Marketing, Small business, tax | Leave a Comment »
Posted by William Byrnes on September 29, 2010
The Automatic IRA Act of 2010 (S. 3760) would require smaller employers to open automatically funded IRAs for their employees, a business opportunity for some advisors and a competitor for advisors to other retirement plans. In addition to its effect on advisors, the automatic IRA program may also benefit the insurance industry by allowing investment in insurance and annuity products, a blessing for insurers when life insurance coverage is at a fifty-year low.
For the complete analysis by our Experts Robert Bloink and William Byrnes, please read the article via your AdvisorFX subscription at The Automatic IRA Act of 2010: Boon for Advisors?
Posted in Retirement Planning | Tagged: Annuity (US financial products), Business, Employment, Financial services, Individual Retirement Account, insurance, Investment, Pension | Leave a Comment »
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