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Plan Terminated, Insurance Policy not distributed


Guest EBGEEK

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Guest EBGEEK

I have discovered that, due to a change in personnel in our organization (A bank trust department), the distribution of an insurance policy has dropped through the cracks. The plan was a profit sharing plan of a dental practice, terminated in 2001. The policy is on the life of and is to be distributed to the principal.

We were the plan's Trustee. The policy was removed from our trust accounting system when the plan terminated but we failed to request that the ownership of the policy be changed to the participant, and I have found no evidence that we sent a 1099R on the cash surrender value of the policy (Now approx. $50K). The final 5500 was filed for the plan year ending 12/31/2001.

Any thoughts on how I should proceed?

Thanks in advance.

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Obviously the policy must be distributed to the participant. The only question is whether the taxation can be avoided by having the insured borrow on the cash value before the distribution so as to zero out the cash value and avoid any taxation in 2003.

mjb

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Guest EBGEEK

What I was particularly concerned about was the time lag between termination/final 5500 and taxation of the cash surrender value to the participant (The participant elected to have us distribute the policy and be taxed on the cash value).

Also, I wasn't sure if I had a problem with the tax liability being deferred to 2003 and/or the fact that the final 5500 had been filed without the policy actually being distributed (It came off the books of the plan timely, but was not actually transferred into the name of the participant at that time).

I suppose the thing to do is just go ahead & distribute the policy and send a 1099 on the CSV.

Thanks for the response.

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