New Legislation Introduced in Congress Would Help Seniors and the Life Settlement Industry

A bill introduced in Congress could help spur sales of life insurance in the secondary market by allowing policyholders to use the proceeds from the sale of a life insurance policy to fund an account to be used for paying long-term care expenses on a tax-favored basis. 

HR Bill 7203, introduced by U.S. Rep. Kenny Marchant of Texas, a Republican, and U.S. Rep. Brian Higgins of New York, a Democrat, has been referred to the House Ways and Means Committee. The bill would allow policyholders to reduce “the amount of gain from the sale or assignment of a life insurance contract … by the amount of contributions to a long-term care account” as long as the contribution was made “during the 30-day period beginning on the date of such sale or assignment.”

Currently, in a life insurance policy sale, the policy owner is taxed on the amount above the cost basis – typically the premium paid. This new law would allow a policy sale to occur tax-free, and then allow the policyholder to place the proceeds into a newly created long-term care account that would be “exempt from taxation” as long as the account was used for paying for long-term care.

Tax-free distributions could be made from the accounts to pay for “qualified long-term care services” as well as “premiums for a qualified long-term care insurance contract,” for both the beneficiary and the beneficiary’s spouse, and after the death of the account beneficiary, the account would revert to the spouse.   

The accounts created would be held in trust by a bank, an insurance company, or “another person who demonstrates to the satisfaction of the secretary that the manner in which such person will administer the trust will be consistent with the requirements of this section.”

Any amount distributed from the account that was not used exclusively for long-term care would be includable in the gross income of the beneficiary and subject to a 20% surcharge, except in cases where the beneficiary dies or becomes terminally or chronically ill under current law. 

The proposed law greatly expands the tax advantages of selling an unneeded life insurance policy in the secondary market, and if passed, would provide the policyholder with another reason to explore the life settlement market.

We will report back on the progress of the bill as it moves through the legislative process.

One thought on “New Legislation Introduced in Congress Would Help Seniors and the Life Settlement Industry

  1. My name is Carl Bibbs 312-593-7771, clb9112@aol.com. A life settlements broker provider indicated that life settlements could be used in opportunity zone development projects as collateral for banks and contractors. If so we are able to provide IRB take out mortgage financing, probably with the same insurance companies. Are there experts at your company to give counsel.

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