transfer for value rule

When a life insurance policy is created, often it is done so to avoid the taxes placed on large sums of money. However, when a life insurance policy is transferred it may be subject to taxes, because after transfer it is considered income to the receiving party. There are three major exemptions to this rule. The situation that will void the transfer for value rule is if the policy is transferred for value to the person insured by it. The second is a transfer for value to a partner of the insured person or to the business, that person is an officer or shareholder of. The third situation is when the transfer for value occurs, but the policy is kept under the basis of the transferring party.

Fast Facts

These transferred policies often occur from one organization to another rather than form one individual to another.
Transferring a policy completely as a gift will avoid any taxes.

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