Lance Wallach
President, VEBA Plan
Lance Wallach is the National Society of
Accountants Speaker of the Year and the President of VEBA Plan, a New
York based accounting, insurance, financial, and estate planning
consulting firm. Some of Mr. Wallach's national engagements have
included National Association of Attorney...
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By Lance Wallach Many insurance professionals now
think that the life settlement market is ending. Agents assisting their
clients in the sale of their unneeded life insurance policies have no
doubt been frustrated by the lack of bids in the current life...
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And what about the lawsuits that have started? The life
settlement market saw double-digit annual growth for a decade until
2008. When the financial crisis hit, global markets and credit
evaporated, and the life settlement markets came to a standstill. How
did this happen to a market that was supposedly not correlated to other
markets?
The life settlement market has long been touted
as a non-corollary asset class. Even today many promoters looking to
raise funds from investors still highlight this investment benefit. I
have always doubted everything about the market and have urged people to
stay away. How would you know if Tony Soprano is buying your mother’s
life insurance policy? I am a member of the Sons of Italy. I was awarded
membership even though I am Jewish. Why? Because I am a friend of the
President of the local chapter.
.
Interest rates
and stock market prices impact the portfolios of life insurance
carriers. The solvency of a life insurance company directly impacts its
ability to meet death claims. Why would life settlements be immune? If
carriers like AIG teeter on the edge of financial ruin, then credit risk
becomes a primary concern for life settlement investors. You may have
heard that an ‘A’-rated carrier has never failed to pay a death claim.
This is a great lie. The insurance company is usually no longer rated
‘A’ by the time they fail to pay.
I think that the life settlement market will not have any future source of funds within two years.
Life insurance companies have been attacking the market for years. Their vast experience in underwriting has already proven victorious as table changes in 2008 damaged the Net Asset Value of all life settlement funds. Their lobbying against life settlements has also been successful. Overly burdensome and poorly written life settlement regulation in various states has simultaneously increased the operating expenses for life settlement firms and decreased the opportunity for the consumer.
I think that the life settlement market will not have any future source of funds within two years.
Life insurance companies have been attacking the market for years. Their vast experience in underwriting has already proven victorious as table changes in 2008 damaged the Net Asset Value of all life settlement funds. Their lobbying against life settlements has also been successful. Overly burdensome and poorly written life settlement regulation in various states has simultaneously increased the operating expenses for life settlement firms and decreased the opportunity for the consumer.
Life
insurance companies are adjusting their COI rates higher and blaming
life settlements for the change. They will sell insurance to preserve
and protect wealth, yet the very products they sell are backed by
investments mired in mountains of debt, equities with high P/E ratios,
and issued in a currency that is deeply flawed. Even though many
carriers survived the Great Depression, our financial markets are
considerably more complex today than they were then and this may cause
many carriers to soon find themselves with big problems in the future.
Lance
Wallach, CLU, ChFC, the National Society of Accountants Speaker of the
Year, also writes about retirement plans, 412(i) plans, and 419 plans.
He speaks at more than ten conventions annually, writes for over fifty
publications, and is quoted regularly in the press. He has authored
numerous books for the AICPA, Bisk TotalTape, Wiley and others. Mr.
Wallach does expert witness work and his side has never lost a case.
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.
The National Conference of CPA Practitioners
ReplyDeleteVolume 5, Issue 7 AUGUST 2008
419 Insurance Welfare Benefit Plans Continue To Get Accountants Into Trouble
By Lance Wallach
Popular so-called “419 Insurance Welfare Benefit Plans”, sold by most insurance professionals, are getting accountants and their clients into more and more trouble. A CPA who is approached by a client about one of the abusive arrangements and/or situations to be described and discussed in this article must exercise the utmost degree of caution, not only on behalf of the client, but for his/her own good as well. The penalties noted in this article can also be applied to practitioners who prepare and/or sign returns that fail to properly disclose listed transactions, including those discussed herein.
On October 17, 2007, the IRS issued Notice 2007-83, Notice 2007-84, and Revenue Ruling 2007-65. Notice 2007-83 essentially lists the characteristics of welfare benefit plans that the Service regards as listed transactions. Put simply, to be a listed transaction, a plan cannot rely on the union exception set forth in IRC Section 419A(f)(5),there must be cash value life insurance within the plan and excessive tax deductions for life insurance, in excess of what may be permitted by Sections 419 and 419A, must have been claimed.
In Notice 2007-84, the Service expressed concern with plans that provide all or a substantial portion of benefits to owners and/or key and highly compensated employees. The notice identified numerous specific concerns, among them:
1. The granting of loans to participants
2. Providing deferred compensation
3. Plan terminations that result in the distribution of assets rather than being used post-retirement, as originally established.
4. Permitting the transfer of life insurance policies to participants.
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