How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask RGMacEsq Your Own Question

RGMacEsq
RGMacEsq, Attorney
Category: Business Law
Satisfied Customers: 11932
Experience:  Licensed Texas General Practice Attorney
19487448
Type Your Business Law Question Here...
RGMacEsq is online now
A new question is answered every 9 seconds

If the ownership of a life insurance policy is transferred

Resolved Question:

If the ownership of a life insurance policy is transferred from a C corporation to an employee/majority stockholder of the corporation who is also the named insured on the policy, will that employee owe tax on the entire cash value of the policy immediately (if so, will it be taxed as ordinary income) and will the death proceeds of the policy also then become taxable?
Submitted: 1 year ago.
Category: Business Law
Expert:  RGMacEsq replied 1 year ago.

RGMacEsq :

Thank you for using JustAnswer. I am researching your issue and will respond shortly.

RGMacEsq :

In this situation, the asset does have present value (a "cash surrender value", or CSV if it's whole, rather than term, life insurance). The extent that cash surrender value equals or is less than premiums paid, you will owe ordinary tax on that (it would be like a bonus to you). You would not owe tax on the amount in excess of the premiums paid, unless and until you surrender that. CSV in excess of the aggregate premiums paid is ordinary income to the owner after you surrender it for the full CSV.

RGMacEsq :

Hope that clears things up a bit. If you have any other questions, please let me know. If not, and you have not yet, please rate my answer AND press the "submit" button, if applicable. Please note that I don't get any credit for my answer unless and until you rate it a 3, 4, 5 (good or better). Thank you, XXXXX XXXXX luck to you!h

Customer:

Will the death proceeds be taxable? Since the corporation has paid the premiums, will they be considered in the employee's basis for the policy?

RGMacEsq :

No. The proceeds would still not be taxable, pursuant to the tax code, unless it was transferred into an annuity. The premiums paid to the extent that they equal CSV will be considered income now and would be taxable as income. It's not like stock which could be a long term capital gains / loss situation.

RGMacEsq :

Rather, it would be a present asset that would have a CSV, that you could opt for, but only to the extent that the current CSV is equal to or less than premiums paid.

RGMacEsq :

Hope that clears things up a bit. If you have any other questions, please let me know. If not, and you have not yet, please rate my answer AND press the "submit" button, if applicable. Please note that I don't get any credit for my answer unless and until you rate it a 3, 4, 5 (good or better). Thank you, XXXXX XXXXX luck to you!

Customer:

Are the proceeds not taxable based on exception to Transfer for Value Rule?

RGMacEsq :

Yes, they would be, but you didn't mention that this policy would be sold to the employee. Is that the case?

RGMacEsq :

It only applies if the life insurance policy is transferred for something of value in return. But it ALSO does not lose its tax exempt status when the policy is transferred to the insurred.

RGMacEsq :

If it was transferred to some other party, or from the insured to another party, the transfer for value rule would apply. But if to the insured, it would not.

Customer:

No, the company's intention is to give the policy to the employee. In fact, there are multiple policies that will be given to the employee. We have been told thought that the corporation will have to show a gain on the policies at transfer and offset this gain by showing compensation equal to cash value to the employee.

RGMacEsq :

Yes.

RGMacEsq :

But your question was about the tax implications to the employee, not the corporation, correct?

Customer:

Yes, should I start another question to inquire about corporation?

RGMacEsq :

Yes. We can only answer questions in the scope of the original. Individual tax versus corporate tax are two different matters.

RGMacEsq :

If there's nothing else, please rate this answer. Please note that I don't get any credit for the time (~35 minutes) and effort that I spent on this answer unless and until you rate it a 3, 4, 5 (good or better). If you feel that I have gone above and beyond in this answer (my average answer is about 10 minutes) bonuses are greatly appreciated. Thank you, XXXXX XXXXX luck to you!

RGMacEsq :

Did you have any other questions before you rate this answer?

Customer:

Ok. Thanks. I will rate question.

RGMacEsq :

My pleasure. If there's nothing else, please rate this answer. Please note that I don't get any credit for the time (~40 minutes) and effort that I spent on this answer unless and until you rate it a 3, 4, 5 (good or better). If you feel that I have gone above and beyond in this answer (my average answer is about 10 minutes) bonuses are greatly appreciated. Thank you, XXXXX XXXXX luck to you!

RGMacEsq, Attorney
Category: Business Law
Satisfied Customers: 11932
Experience: Licensed Texas General Practice Attorney
RGMacEsq and 3 other Business Law Specialists are ready to help you

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • Mr. Kaplun clearly had an exceptional understanding of the issue and was able to explain it concisely. I would recommend JustAnswer to anyone. Great service that lives up to its promises! Gary B. Edmond, OK
< Last | Next >
  • Mr. Kaplun clearly had an exceptional understanding of the issue and was able to explain it concisely. I would recommend JustAnswer to anyone. Great service that lives up to its promises! Gary B. Edmond, OK
  • My Expert was fast and seemed to have the answer to my taser question at the tips of her fingers. Communication was excellent. I left feeling confident in her answer. Eric Redwood City, CA
  • I am very pleased with JustAnswer as a place to go for divorce or criminal law knowledge and insight. Michael Wichita, KS
  • PaulMJD helped me with questions I had regarding an urgent legal matter. His answers were excellent. Three H. Houston, TX
  • Anne was extremely helpful. Her information put me in the right direction for action that kept me legal, possible saving me a ton of money in the future. Thank you again, Anne!! Elaine Atlanta, GA
  • It worked great. I had the facts and I presented them to my ex-landlord and she folded and returned my deposit. The 50 bucks I spent with you solved my problem. Tony Apopka, FL
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
 
 
 

Meet The Experts:

 
 
 
  • Law Pro

    Attorney

    Satisfied Customers:

    1426
    20 years experience in business law - sole proprietor, partnership, and corporations
< Last | Next >
  • http://ww2.justanswer.com/uploads/LA/lawpro/2012-6-25_171315_PT206740s.64x64.jpg Law Pro's Avatar

    Law Pro

    Attorney

    Satisfied Customers:

    1426
    20 years experience in business law - sole proprietor, partnership, and corporations
  • http://ww2.justanswer.com/uploads/DC/DCraneEsq/2012-8-14_14436_DCrane.64x64.jpg MShore Law's Avatar

    MShore Law

    Attorney

    Satisfied Customers:

    1233
    Drafted Negotiated and/or Reviewed Thousands of Commercial Agreements
  • http://ww2.justanswer.com/uploads/FL/FLAandNYLawyer/2012-1-27_14349_3Fotolia25855429M.64x64.jpg FiveStarLaw's Avatar

    FiveStarLaw

    Attorney

    Satisfied Customers:

    1162
    25 years of experience helping people like you.
  • http://ww2.justanswer.com/uploads/dkaplun/2009-05-17_173121_headshot_1_2.jpg Dimitry K., Esq.'s Avatar

    Dimitry K., Esq.

    Attorney

    Satisfied Customers:

    1142
    Run my own successful business/contract law practice.
  • http://ww2.justanswer.com/uploads/ohioatty/2009-1-22_185545_me.jpg J.Hazelbaker's Avatar

    J.Hazelbaker

    Attorney

    Satisfied Customers:

    393
    Experienced and trained in the area of business law.
  • http://ww2.justanswer.com/uploads/scottymacesq/2009-6-10_221523_small.jpg RGMacEsq's Avatar

    RGMacEsq

    Attorney

    Satisfied Customers:

    393
    Licensed Texas General Practice Attorney
  • http://ww2.justanswer.com/uploads/BA/barristerinky/2012-6-10_22423_office.64x64.jpg Barrister's Avatar

    Barrister

    Attorney

    Satisfied Customers:

    301
    13 years practicing attorney, MBA