What are the tax consequences of a Senior Settlement?
You are urged to contact your financial adviser or tax professional to learn what taxes might apply.
However a Life Settlement transaction taxes might include:
Some generalizations can be made, however. If the policy owner has a documented life expectancy of under two years, the settlement qualifies as a Viatical and is usually tax-free.
If your life expectancy has been determined to be more than two years, your Life Settlement may be subject to state and federal tax. Capital gains tax and ordinary income Tax may apply.
If you give part or all of the proceeds to an individual while you are alive, or if you transfer ownership of your policy to that individual, the individual may have to pay gift tax for amounts in excess of the tax exemption amount(currently $11,000, except for gifts to a spouse, which is unlimited)
The Cash Surrender Value of a policy, determined by your insurance company, is key to calculating your tax liability.
If your Cash Surrender Value exceeds the amount that you have paid in premiums for the policy, that excess can be taxed as ordinary income.
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Call 1-888-973-8377 with any questions.
September 30th, 2005 at 4:23 pm
Like stated above, in most cases a viatical settlement is tax free.