A recent United States Tax Court memorandum[1] opinion provides an important reminder that life insurance policies with outstanding loans can create unexpected income tax consequences when the policy lapses or is surrendered.[2] In Sawyer v. Commissioner, the Tax Court held that a taxpayer realized taxable income when the cash surrender value of his life insurance…
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Many individuals take out life insurance policies for valid planning reasons which later are no longer needed or desirable. Alternatively, the policy owner may need current liquidity. While many policies can be surrendered for their cash value or the owner may take loans against the policy, there may be other options. One of those options…
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Life insurance policies are held by many American taxpayers. While valuable, policies are generally illiquid, making them a candidate to use as collateral to borrow against. As illustrated in a recent United States Tax Court summary opinion[1], failure to make the requisite premium payments on the life insurance policy used to secure a loan may…
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You and your friend wish to start new business based on a novel idea that you both are sure will succeed. You know there are no obstacles that can prevent this business from growing and thriving. You are sure this new business will bring you and your family the security and prosperity you have always…
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***This article is a follow-up to a prior article from 2019 which can be found here. Life insurance is a great tool that can serve a variety of purposes. Most often, it is thought of as an income replacement/hedge against premature death to provide for one’s family, and it is certainly a great tool to…
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