Two provisions in the Tax Cuts and Job Act Law of 2017 (TCJA) have captured the attention of planners and fiduciaries working with senior clients.  As a result, Ashar Group is receiving a flood of inquiries from estate planners wanting to know the fair market value (FMV) of life insurance policies owned by their high net worth (HNW) clients.

Increased Estate Tax Exemption

The estate tax exemption has increased to $11.2 million per individual and $22.4 million per married couple.  Since life insurance has long been the cornerstone of estate and tax planning for HNW individuals, insurance professionals and fiduciaries nationwide have clients that are deciding if they need to keep the insurance that has been put into place for estate protection. They want to know how much their policy is worth if they sold it on the life settlement market.  From our vantage point, there are several scenarios, besides a life settlement, that could benefit from a secondary market valuation (SMV®) analysis.

The Secondary Market Valuation (SMV®) Enhances Planning

The SMV® includes not only an analysis of FMV, but also an individualized longevity analysis. Assuming the planner/fiduciary is asking all of the questions to determine what plan of action is appropriate, then an SMV® can provide reliable data to be sure client best interests are being served.  For example:

  • Is the SMV® greater than the cash surrender value?
  • If the policy is a term policy, does it contain any FMV?
  • What is the likelihood of the insured outliving the 2026 sunset period?
  • What is the return on investment (ROI) of the policy during the sunset period?
  • Is the cost of insurance (COI) increasing or likely to increase?
  • Would it be in the client’s best interest to sell the policy, get a cash settlement, and reallocate the cash and the premium payments to other retirement alternatives?
  • Could the sale of one policy remove the burden of paying for the client’s other policies out of pocket?

More Favorable Tax Treatment for Life Settlements

The other benefit for seniors provided by the TCJA is more favorable, and less confusing, tax implications should your client decide to sell their policy.  In 2009, the IRS issued Revenue Ruling 2009-13 which treated taxation on policy sales different than taxation on policy surrender.  The TCJA leveled that playing field and allows for the same tax treatment for both.  This is good news for any policy owner who participates in a life settlement and results in a significant tax savings compared to the 2009-13 ruling.

(Read more about the TCJA here)

Due Diligence

If the decision is to sell all or part of your client’s permanent or term life insurance, there are several factors that must be considered to protect client best interests:

  • Does the resource you choose have a fiduciary responsibility to you and your client?
    • Ashar Group is a nationally licensed life settlement broker and has a fiduciary responsibility to you and your client.
    • Life settlement providers have a fiduciary duty to the institutional buyers they represent.
    • Institutional buyers have a fiduciary responsibility to get the best internal rate of return for their fund.
  • Does the broker you choose to represent your client have the knowledge and staff to drive competitive bidding that results in FMV?
  • Does the broker complete due diligence on all institutional buyers?
  • Does the broker have procedures and safeguards in place to protect sensitive client data?

About Ashar Group

Ashar Group is an independent 3rd party resource that supports financial professionals and fiduciaries. We appraise life insurance assets for fair market value (FMV) and provide a formal, market-based valuation that provides an essential FMV data point for planning decisions and risk mitigation.  If the life settlement option is chosen as the planning solution, Ashar is a nationally licensed life settlement brokerage with fiduciary responsibility to the client to create a competitive bidding environment and negotiate the best offer possible. Our national accounts include major life insurance carriers, broker dealers, BGAs, IMOs, national banks, and trust companies. We are a resource for more than 30,000 planners, attorneys, trust officers, and CPAs nationwide for risk management and insurance planning; philanthropic planning; retirement planning; and estate, gift, and wealth transfer planning.