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Avoid the IRS 6707A Penalty, form 8886 for 419e 412i plans

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  1. Small Business Owner's Guide to Tax Reductione policies.

    You can also sell term insurance policies. Life-settlement transactions involving key-man or buy-sell policies can provide businesses with increased cash flow to solve immediate financial problems, while transactions concerning split-dollar policies typically involve retirement planning and charitable giving issues.

    An individual can also sell their policy for cash. In a recent advisor survey, nearly half of the respondents had clients who had surrendered a life insurance policy, many of whom might have qualified for a life-settlement transaction and subsequent lump-sum cash payment.

    A primary reason why an accountant should be well-versed in the life-settlements field is the importance of their fiduciary responsibility to clients. When providing financial advice and strategic information, being able to identify a way to eliminate an asset that burdens the client with unnecessary expenses can be very helpful. Offering more options can satisfy more clients.

    The life-settlement process takes about a month, is confidential, and the proceeds can be used for anything.

    A recent settlement example is a 66-year-old male with a $2 million universal life policy with $4,200 of cash surrender value. The owner, who could no longer afford the increasing premiums, was paid $194,992 for the policy.

    If one still needs life insurance, but does not want to continue the existing policy, the insurance swapoutsm should be compared to the life-settlement offer for the best results. That involves the exchange of insurance, elimination of taxable “paper” gain, or credit against a new policy of basis in an old one.

    The alternatives to the above are keeping unwanted insurance, canceling and paying taxes, or canceling insurance and losing credit for the taxable loss.

    Lance Wallach, CLU, ChFC, CIMC, speaks and writes extensively about financial planning, retirement plans, and tax reduction strategies. He speaks at more than 70 national conventions annually and writes for more than 50 national publications. For more information and additional articles on these subjects, visit or call 516-938-5007.

    The information provided herein is not intended as legal, accounting, financial or any other type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice