Transfer for Value Problems in Employee Benefit Planning

Transfer for Value Problems in Employee Benefit Planning

There are a number of situations in which clients can fall into the transfer for value trap in the employee benefit planning area. One is where there is a transfer of life insurance policies to the trustee of a qualified retirement plan. The transfer may take place as a part of the corporate employer’s contribution to the plan on behalf of the participant or as a part of a participant’s voluntary contribution to the plan….

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Transfer for Value Problems in Buy-Sell Agreements

Transfer for Value Problems in Buy-Sell Agreements

In planning for corporate or partnership buy-sell agreements funded with life insurance, as in any of the other “high risk areas discussed below, it is essential to examine (and suspect) any transfer of a life insurance policy funding the buy-sell arrangement. Here is a checklist of potential transfer for value traps in the buy-sell planning area. The Uninsurable Shareholder Trap An uninsurable shareholder sells her individually owned insurance to a co-shareholder to help fund a…

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Typical Personal Life Insurance Planning Problems

Typical Personal Life Insurance Planning Problems

Transfers of life insurance policies between family members other than spouses are a quicksand pit for clients and their planners. Assume an insured purchases a policy on his life from his corporate employer. He then immediately names his wife as beneficiary. She collects the policy proceeds upon the insured’s death. The proceeds should be exempt because the transfer is to a proper party, the insured. Not so easy to recognize are the much more deadly…

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4 Exceptions to the Transfer for Value Rule with Life Insurance

4 Exceptions to the Transfer for Value Rule with Life Insurance

It is essential that planners understand why the rule exists: Congress wanted to discourage speculation in human life through insurance via the sale of policies to those who do not have an insurable interest in the life of the insured (essentially, a stronger preference for the continued life of the insured than for receipt of the insurance proceeds).5 The parties specified below as exempt from the transfer for value rule are those who are likely…

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What is the Transfer for Value Rule as Respects Life Insurance

What is the Transfer for Value Rule as Respects Life Insurance

The transfer for value rule, contained in Internal Revenue Code section 101(a)(2), provides: In the case of a transfer for a valuable consideration, by assignment or otherwise, of a life insurance contract or any interest therein, the amount excluded from gross income by [the beneficiary of death proceeds under a life insurance contract] shall not exceed an amount equal to the sum of the actual value of such consideration and the premiums and other amounts…

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