William Byrnes' Tax, Wealth, and Risk Intelligence

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

Posts Tagged ‘Premium Financing’

New Cancellation of Debt Rules Leave Grantors on the Hook

Posted by William Byrnes on August 19, 2011

The collapse of the secondary market for life insurance during the recent financial crisis left a lot of trusts anxious to dispose of large face value life insurance policies. Trusts that handed back policies in satisfaction of premium finance loans were then struck, along with their grantors, with massive tax bills for what is known as cancellation of indebtedness or cancellation of debt (COD) income.

The IRS recently released proposed regulations that address the income tax treatment of cancellation of debt income of trusts. Although this highly technical area of the law may not be of interest to lay audiences, it is a vital aspect for advisors selling high-value life insurance policies.


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 an interesting case involving a premium financed policy in Advisor’s Journal, see Lawsuit Seeks to Hold Insurer Responsible for Suspicious Death (CC 10-101).

For in-depth analysis of life settlements (which can be structured as a premium finance transaction), see Advisor’s Main Library: B—The Life Settlement Industry.

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Lawsuit Seeks to Hold Insurer Responsible for Suspicious Death

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).

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