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Terminate VEBA and Transfer of Assets Advice Needed


Guest seannihalani
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Guest seannihalani

My company has a VEBA plan adopted. Variable Life Insurance plans were purchased FBO employees. There is no cash left in the trust account. All contributions were made over several years. It had 3 employees participating in VEBA.

Two employees retired 2 years ago. Income is too low for business to sustain operations. So business has to be shut down.

1) Need advice & help on planning the termination of the VEBA plan.

2) Anyone you can refer in California (Orange County or San Jose).

3) To avoid tax consequences, I understand that if the policies are rolled into a Lifer Ins Irrevocable Trust, it will be best. Does each employee set up their own Life Ins Irrevocable Trust ?

4) Any alternate choices or feedback is welcome.

Thanks in advance.

Sean

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You raise several issues, some intentionally:

1. Why do you describe your company's plan as a VEBA? Did your company apply to IRS and receive a letter of determination?

2. What plan termination provisions are included in the trust document?

3. There are several knowledgeable attorneys in So. Cal. who can assist you. However, they are not inexpensive. Don't know about SJ.

4. Who has been administering the plan? Are they unavailable to assist you with closing it down?

5. Rolling the policies into an ILIT will NOT avoid tax consequences. The taxable value of the policy (less any basis) would be taxable income to the employee. Each employee would set up his or her own ILIT.

6. Who owns the policies now? Have the employees been paying taxes each year on the Table I amounts?

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Guest seannihalani

Replies to Oct 31 questions by vebaguru-

.

1. Why do you describe your company's plan as a VEBA? Did your company apply to IRS and receive a letter of determination?

.

- The plans are owned by a trust that is part of a MET & di dreceive IRS leter of approval.

.

2. What plan termination provisions are included in the trust document?

.

- I can't find any clause. I will review and respond to this one.

.

3. There are several knowledgeable attorneys in So. Cal. who can assist you. However, they are not inexpensive. Don't know about SJ.

.

- Any non-attorney course of action is welcome too. I won't mind having another adminstrator who can work in the interest of the business & participants.

.

4. Who has been administering the plan? Are they unavailable to assist you with closing it down?

.

- There is a company that acts as an administrator. Their interests appear to be more into keeping the plan active & realistically their level of service sucks. Takes forever (even weeks) to get answers because they are too busy. They even juggled the funds 2 years ago into wrong policies between participants, created a nightmare for everyone, so they are sloppy too.

.

5. Rolling the policies into an ILIT will NOT avoid tax consequences. The taxable value of the policy (less any basis) would be taxable income to the employee. Each employee would set up his or her own ILIT.

.

- Is the taxable value the cash value of the policy ? If that is too low, then may be having life ins trusts may not be needed ?

.

6. Who owns the policies now? Have the employees been paying taxes each year on the Table I amounts?

.

- No, the employees have not being paying any taxes. Policies are owned by & held in the VEBA trust created FBO for the employees by the business. This trust is a part of MET.

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Thanks for your answers. A couple of more questions: Are plan and trust documents separate or combined? Is/was the plan a 419A(f)(6) plan?

You may consider contacting Bruce Ashton (of Reish & Luftman) or Nicolas Saakvitne, as they are attorneys knowledgeable about such plans. Louis Kravatz & Associates, an actuarial/administrative firm may be able to assist you. (There are several others as well.)

The cash surrender value has generally been considered to be the taxable value for distribution purposes. However, due to abuses, IRS has recently been applying new rules (using total premiums paid, for example).

Throughout your initial post, you speak of the employer's VEBA. Now you throw in "This trust is a part of MET." Which is it? Who received the determination letter?

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