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Economic Evaluation Group, Inc.

A Concierge Employee Benefits Consulting & Brokerage Firm 
(516) 338-2800


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TRANSFER FOR VALUE

When beneficiaries receive the death proceeds of a life insurance policy, such proceeds are generally exempt from federal income tax, with a few exceptions. One important exception occurs when the policy has been transferred for a valuable consideration during the insured's life.

No transfer for value occurs when a policy owner makes a gift by transferring a policy without receiving valuable consideration. The death proceeds still qualify for a full income tax exemption.

When a policy has been sold or otherwise transferred for a valuable consideration, the income tax exemption is limited to the purchase price plus any subsequent premiums paid by the transferee. The portion of the death proceeds includible in the beneficiary's gross income is equal to the gain in the policy-the death proceeds payable minus the purchase price and subsequent premiums paid by the transferee.

Certain categories of transferees can purchase a life insurance policy without triggering a transfer for value. These so-called "exempt transferees" are:

  • - The insured individual
  • - A partner of the insured
  • - A partnership in which the insured is a partner
  • - A corporation in which the insured is an officer or a shareholder
  • - A person who receives the policy by any form of transfer in which the transferee's tax basis in the policy is determined by reference to the transferor's basis

 

If a non-exempt transferee purchases an existing life insurance policy, the death proceeds are partially subject to federal income tax. Some common non-exempt transferees include:

  • - A co-shareholder of the insured
  • - A child or sibling of the insured* (unless the transfer is by gift)
  • - The insured's living trust**
  • - The insured's key employee

 

* Purchase by the insured's spouse from the insured is an exempt transfer (IRS §1041). The spouse's purchase from any other party (e.g., the insured's employer or business partner) is not an exempt transfer.

** Purchase by the insured's revocable living trust, when the insured is treated as the owner of the trust for tax purposes, is treated as a transfer to the insured, who is an exempt transferee.

 

 

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Economic Evaluation Group, Inc.

© 2018 Economic Evaluation Group, Inc.

Copyright© 2018 Economic Evaluation Group Inc. Revised: 08/04/2018 Content subject to change at any notice. Not responsible for typographical errors. 

Economic Evaluation Group, Inc. Specializes in Group Health Insurance (Group Medical Insurance). EE Group is located in Melville, Long Island, New York and service all over the United States and Canada.

Economic Evaluation Group is currently Licensed in Arizona (AZ), Arkansas (AK) California (CA), Connecticut (CT), District of Columbia, (DC), Florida (FL), Georgia (GA), Illinois (IL), Kentucky (KY), Maryland (MD), Massachusetts (MA), Maine (ME), Michigan (MI), Minnesota (MN), Missouri (MO), New Hampshire (NH), Nebraska (NE), New Jersey (NJ) , New York (NY) , North Carolina (NC), Oklahoma (OK), Pennsylvania (PA), Texas (TX), Vermont (VT), Virginia (VA). NOTE: If your state is not listed we can easily add the state license.