Jason T. Medelsohn has published his article, Spotlight on life settlement transactions: Getting the best value, in the AICPA Tax Advisor (June 1, 2019).
The executive summary of this article is as follows:
• The law known as the Tax Cuts and Jobs Act (TCJA) affected life settlement transactions in two ways — by doubling the estate tax exemption, which made it less necessary for many wealthy families to keep life insurance policies, and by making the taxation of the sale of life insurance policies, i.e., life settlements, more favorable to sellers.
• Life settlement brokers have a fiduciary duty to the policy owner in a life settlement transaction. Policy owners who use brokers rather than dealing with buyers themselves usually obtain a higher price for their policy.
• The TCJA equalized the tax treatment of the surrender of a life insurance policy and a life settlement.
• Before attempting to negotiate a life settlement, a policy owner should always obtain an appraisal of the value of the policy from a qualified appraiser.
• The recent sustained period of low interest rates has caused many current assumption universal life policies to become too expensive for policy owners to keep. A life settlement will often be a better option for these policy owners than allowing the policy to lapse or surrendering the policy.
• CPAs can provide a valuable service by inquiring about a client’s life insurance policies and providing the client advice or referring the client to a competent life settlement broker if the client has policies that may be in danger of lapsing or that the client is considering surrendering.
Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal..