Familiarize Yourself With The Option of a Life Settlement (Part 3)

FOR IMMEDIATE RELEASE
Maplewood, New Jersey, United States of America (Free-Press-Release.com) October 6, 2010 --

How does the process work? The client signs an application which includes a questionnaire, disclosures, as well as release forms for the clients’ medical records and new carrier illustrations. Medical records are obtained and are sent to approved medical underwriters that calculate life expectancies (LE’s), stated in months. New illustrations are requested from the carrier along with proof that the policy is still in force. The policy is listed for sale (generally on a secure MLS type internet based service) with such accompanying information – LE reports, illustrations, etc. Potential buyers are contacted for solicitation of initial and continuing bids. Simply put, when bidding has peaked, the owner is notified of the highest offer, which he may either accept or decline. The owner is under no obligation to accept any offers throughout what is a valuation process.

If the client indeed accepts the offer, a purchase-sale contract, escrow contract and ancillary documents are signed, including forms from the carrier that instruct it to change ownership and beneficiary status. The client will not actually receive the cash settlement until such closing documents are signed, and the issuing insurance carrier makes the necessary changes, and has confirmed this with the parties. The seller, in most states, has another 15 days from his receipt of the cash (known as the “rescission period”) to change his mind, repay what has been paid to him, and reverse the sale. Or, worst case scenario, if the insured dies within this period, the sale is automatically rescinded. But beware of differences in state laws and/or funders’ contractual forms.
The insured must understand that someone will own a policy on his life and that policy will most likely stay in force until his death. He also gives rights to future medical records. The insured also must designate a person for the new owner to contact regularly (every six months, e.g.) to attest to the health or death of the insured.

The tax ramifications of a life settlement are covered in IRS Revenue ruling 2009-13 effective as of August 2009. This ruling suggests that the sale of a policy is like the sale of other assets, and will result in taxable income to the extent there is a gain over basis. Gains may be classified as either ordinary or capital, depending upon a simple analysis: ordinary income to the extent income would have resulted had there been a surrender of the policy; otherwise, capital gains. This Revenue Ruling also suggests that, going forward, the cost of insurance must be considered in the computation of basis. Tax impacts should be an integral part of the conversation and should be done in consultation with the client’s tax advisors.
One other important issue is that Medicaid eligibility, and/or similar benefits, may be compromised by the sale of a life insurance policy. Although the policy may not have much of a cash surrender value, selling the policy may result in a large cash settlement to the owner.
Be aware that if an insured has a life expectancy of less than two years, the policy will be sold as a “viatical settlement”. Generally speaking, in such cases the Code provides that this is a non-taxable event to the seller.

Integrity Life Solutions, LLC offers a free CPE course with No Strings Attached. Our free CPE course is written per NASBA guidelines which approves us to offer a 100 minute free CPE class. This course is designed to save you time and money while you learn and earn free credits.
This 2 credit free CPE and CFP class introduces an overview to the Life Settlement industry. This free CPE course will explain why it is your fiduciary duty as a CPA and CFP to understand and recognize a viable life settlement and to be able to explain it to your clients.

http://www.freecpe.org/ or www.integritylifesettlements.net or call 973-275-1110

Integrity Life Settlements is a viatical settlement and life settlement broker, located in the New York area in Maplewood NJ. They negotiate the transaction between the seller and the Buyer. Their expertise is in obtaining the highest possible value for your policy from only reputable financial institutions. Integrity Life Settlements is affiliated with other professionals including attorneys, accountants and actuaries who can provide you with independent financial advice. If you prefer, Integrity Life Settlements will work with any of your trusted financial and legal advisors. In either case, a due-diligence will be performed prior to any transaction.

http://www.freecpe.org/ or www.integritylifesettlements.net or call 973-275-1110

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