Wealth & Risk Management Blog

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

Posts Tagged ‘Life’

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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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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Court Holds that STOLI Law Isn’t Retroactive

Posted by William Byrnes on October 3, 2011


A stranger-owned life insurance promoter won a big victory when the California Court of Appeals ruled 2-1 that California’s 2009 anti-STOLI law does not apply to policies issued before the statue was enacted.

The ruling was issued by the 4th Appellate District in an appeal on the case: The Lincoln Life and Annuity Company of New York vs. Jonathan S. Berck, as Trustee, etc, Case No. D056373 (17 May 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 STOLI cases in Advisor’s Journal, see STOLI Scheme Lands Insurance Agent in Jail (CC 11-92).

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Is the Contestability Period a Shield or a Sword in STOLI Disputes?

Posted by William Byrnes on September 12, 2011


Should insurance applicants and third-party investors be allowed to make material representations when applying for life insurance, if they can manage to hide misdeeds for at least two years? The United States District Court for the Southern District of New York thinks so.

In the latest STOLI case coming out of the federal courts, judge and jury discussed whether blatant fraud on a life insurance policy application is actionable to invalidate a policy after the contestability period has passed. The jury and court held for the investor in the $5 million case.

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

For previous coverage of STOLI in Advisor’s Journal, see STOLI Scheme Lands Insurance Agent in Jail (CC 11-92), 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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Administration Defends Proposed Insurance Limitations

Posted by William Byrnes on September 6, 2011


The Obama Administration’s 2012 federal budget proposal has revived two budget proposals that will impact the life insurance business – one affecting Corporate-Owned Life Insurance (“COLI”) and the other affecting carriers’ Dividends-Received Deduction (“DRD”).

In response to concern that the proposals tamper threaten the tax preferred status of life insurance, the Treasury recently issued a letter clarifying that these proposals have relevance only to tax arbitrage issues, not the tax treatment of death benefits.

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 corporate life insurance in Advisor’s Journal, see Obama Budget Would Undercut Utility of Life Insurance in Small Business Planning (CC 11-41).

For in-depth analysis of taxation affecting corporations, see Advisor’s Main Library: A – The Corporate Income Tax.

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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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New York Holds Carrier Can’t Deny Term Conversion for Settlement

Posted by William Byrnes on July 26, 2011


The New York Department of Insurance, Office of General Counsel, stated on February 25, 2011 that insurance carriers cannot refuse to convert a term policy to a permanent policy on the ground that the policy will be sold on the secondary market. The debated issue was whether the converted policy is a “new” policy that must satisfy the insurable interest requirement. Nevertheless, this ruling will not affect all term policies, since many term life insurance policies are not convertible. 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).

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Subsequent Divorce Decree’s Impact on Beneficiary Designation

Posted by William Byrnes on July 18, 2011


Which prevails when it is time to make a claim, a last in time divorce decree or a beneficiary designation made at the time of the application years ago?  A wife had her estranged husband, sign a separation and property-settlement agreement to release him from any claims to her estate or property.  When the wife passed away, her former husband sought the life insurance proceeds, as did her mother and son.  The answer is provided in a cautionary tale of beneficiary designations told in a recent 4th circuit case.

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 beneficiary designations in Advisor’s Journal, see The Effect of Divorce on Life Insurance Beneficiary Designations (CC 10-39) & Don’t Overlook Beneficiary Designations and Settlement Options (CC 09-28).

For in-depth analysis of beneficiaries and settlement options, see Advisor’s Main Library: D – Problems In Beneficiary Designations.

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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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Life Insurance: Iron-Clad Asset Protection or Chink in the Armor?

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.

 

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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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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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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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Recent STOLI Case Is a Big Win for Insurers

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.

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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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