Opulen Capital Life Settlement: How Will The IRS Rulings Affect Your Life Settlement Sale Or Purchase?

With more regulatory oversight in the life settlements market, it was inevitable that new tax laws would surface on the heels of the financial industry meltdown. News out of Washington from the Internal Revenue Service could possibly bring tax changes to participants on both side of the life settlements industry equation. Here’s a glimpse of what to expect:

Revenue Ruling 2009-13

In the May 26^th IRS bulletin, the IRS examined three different scenarios in which a policy holder A) surrendered the policy, B) sold the policy to someone unrelated who would not suffer economic loss upon the policy holder’s death, and C) sold a contract that was a level premium fifteen-year term life insurance contract without cash surrender value.

In scenario A, the policy holder who paid $64,000 in premiums and received $78,000 on surrender is tapped for $14,000  in ordinary gains due to the surrender not being a sale or exchange, the trigger for capital gain/loss.

In scenario B, the IRS figured the individual’s tax on the $80,000 sale price of the policy, minus the adjustment for the cost of insurance ($10,000)– the IRS ruled that the difference between the cash surrender value ($78,000) and the adjusted tax basis of $54,000, (total premiums of $64,000 minus the $10,000 cost of insurance) is considered ordinary income.

In scenario C,  the $20,0000 sale in the fifteenth year of the policy is treated as a long-term capital gain because the policy holder sold the policy to a third party during the last year of coverage. The entire sales price, minus half of the last month’s $500 premium, is consider the long-term gain.

Revenue Ruling 2009-14

Likewise the tax rules have changed for the secondary market holder. The IRS ruled that in Case #2, which is the same as scenario A above, the buyer of the policy then sells it to another party for $30,000. The adjusted tax basis for the first buyer is $29,000 because he’d paid the initial $20,000 for the policy and an additional $9,000 in premiums. With a profit of $1,000, the first buyer is tapped with a long-term capital gain on that amount due to the sale of the policy.

The IRS ruled that in case #1, which is identical to the scenario C above, the death benefit over the price and premiums paid is considered ordinary income.

How much will the new tax laws affect your life settlement agreement? That would depend on your policy value, surrender value, premiums paid, and the purchase price of any life settlement sale. We at Opulen can help you determine the bottom line in your particular tax situation by examining all factors in your policy and life settlement deal.

Located in La Jolla, California, Opulen Capital is a specialized financial services firm focusing on products and services tailored for senior citizens. Opulen Capital is one of the leading firms offering Life Settlement opportunities for high net worth clientele. We leverage unrivaled experience and exclusive relationships in the life settlement marketplace to structure, obtain, and sell life insurance products to maximize cash profits for our valued clients. Opulen Capital’s mission is to continue to provide the best solutions for our clients through the highest level of integrity and service. For more information, visit our website at http://www.OpulenCapital.com or call Opulen at 877-OPULEN-1 (877-678-5361)