Thought You'd Like to See This:
Planning For Transfers Of Life Policies:
Things to Consider

Those who own life insurance policies sometimes want to transfer those policies to others. Here are some examples. An affluent person may decide to give away a life policy to a younger family member for estate planning reasons. An employer may decide to transfer an existing company-owned insurance policy as a reward to its key employee. Still other insureds may consider selling their policies to unrelated investors.

What's a life insurance policy worth?

It's a simple question. Unfortunately, the answer can be complicated. Depending on the circumstances, the value of a life policy can vary widely. If the policy owner is seeking to sell the policy to a third party investor, a policy's worth what the investor will pay. However, if there's no buyer involved, the government usually gets into the valuation act—primarily because it wants to collect taxes.

So how does the government value a life policy?

• For gift tax purposes, the value is usually the interpolated terminal reserve.
  
  
• For estate tax purposes, the value is also usually the interpolated terminal reserve.
  
  
• For income tax purposes on policies transferred related to employment, the value is usually the greater of the PERC value or the interpolated terminal reserve.
  
  
• For the purpose of keeping a transfer from disqualifying a pension plan, a life policy is valued at its surrender value.
  
  
• To measure the tax value of a policy distributed from a pension plan, the value is usually the greater of the adjusted PERC value or the interpolated terminal reserve.

What is the PERC value or the interpolated terminal reserve? These are values for a life policy that may need to be calculated by an actuary. In some cases, even the actuaries may not agree on what the policy value might be.

What's the bottom line? If you're thinking about transferring or selling a life insurance policy—or if you've transferred one recently—please let me know. I can help you and your advisors get the right valuation.

Please contact us at 504-212-3440 or estateplanning@lawealthplan.com to set up an appointment with Todd or Chip to discuss tax planning or other matters of financial concern.