Don’t Make The IRS A Co-Owner Of Your Policy!

Whenever an asset changes hands a risk is involved in the transition of title, especially with life insurance policies! The biggest tax advantage of life coverage is the ability to receive the death benefit income tax-free.

But much of the death proceeds from a transferred policy will be taxable unless the change is an exception under the Internal Revenue Code!

A couple of points:

• Most intra-family transfers are considered gifts and don’t affect taxation of the death benefit.
• A policy can always be transferred back to the insured without issues.
• Even lower-income beneficiaries can feel the effect as the taxable portion of the proceeds is added to, and often exceeds, their normal taxable income.
• Taxation can be triggered by the transfer of any interest in the policy, not just outright ownership.
• Most problems occur when unneeded business-owned policies are transferred to someone other than the insured (e.g. a trust).

The good news! Most potentially taxable changes can be avoided, and past taxable changes can usually be fixed.

Reach out to Tom Virkler, JD – Director, CPS Advanced Markets, at 706-614-3796 or tom@cpsadvancedmarkets.com concerning any policy ownership changes you anticipate, or to discuss current policy placement to avoid problems down the road should ownership changes become necessary.