Taxation of Universal Life Insurance - should an ownership change be t

[Guest Nadine]

For Universal Life Insurance products, when an Ownership change is process, we currently only tax non-natural owner changes.

Need to know if we should be taxing more than non-natural owner changes? Individual to Individual? Individual to another type of entity? Entity to Entity?

If you have a URL to refer to that would be great.

[GBurns]

I would think that whatever authority you based the decision to tax non-natural ownership changes should be the same authority that would give the best answer.

What authority was that?

[Michael Devault]

I believe that whenever the ownership is changed, the original owner will likely experience a taxable event, regardless of the new owner. The gain will be ordinary income to the original owner.

Of additional concern is whether the change of ownership will effect the income tax exemption of the death proceeds. The so-called "transfer for value" rule may cause the death benefit to be taxable. Look at IRC section 101 for details.

Hope this helps a bit.