Tag: taxes

Tax Considerations

Life Settlement Tax Considerations

It might seem that tax codes are designed to confuse the average American, but seniors looking to maximize their retirement income will benefit greatly from understanding tax revisions that can make life settlements more favorable. Magna’s “Life Settlement Tax Considerations” to the changes in the tax laws and their effect on the life settlement market is available for anyone seeking more information about the new tax provisions.*

Among other information, this white paper includes:

  • An explanation about the difference between life settlements and viatical settlements, and the tax implications for each.
  • A discussion of the specific provisions included in the 2018 Tax Cuts and Jobs Act, such as the doubling of the estate tax exemption and the allowance for insurance premiums to be included as part of the tax basis.
  • An analysis of life settlements in the current tax climate and the possibility that they can provide a retirement windfall for more seniors today because of the new provisions.

To read the white paper in its entirety, please fill out the form to gain access:

Bill HR 7203 to Allow Life Settlements to Fund Long-Term Care

Bill HR 7203

A new bill being weighed by the U.S. House of Representatives would make provision for the tax-free rollover of life settlement proceeds into tax-free accounts dedicated to long-term care. The bill, H.R. 7203, was sponsored by Rep. Kenny Marchand (R-TX) and referred to the House Ways and Means Committee on November 30.

H.R. 7203, known as the Long-Term Care Account Act, would provide a significant benefit for seniors who are facing the daunting costs of long-term care. If those individuals have a life insurance policy that is no longer serving them, the bill would permit them to easily use the money from a life settlement to fund an assisted care facility, in-home care or other treatments deemed medically necessary.

The provisions of the Long-Term Care Account Act include:

Tax-free transfer of funds

The tax-free transfer of funds from a life settlement into accounts used exclusively for long-term care expenses. That money can be used for long-term care insurance or any “qualified health expenses” that a medical practitioner would recommend to treat health impairments or maintain health for retirees.

– As long as the distributions from life settlements into the long-term care accounts are used for their stated purpose, they will be exempt from any tax. If funds are used for unauthorized purposes unrelated to long-term care, those expenditures will be subject to both income tax and a 20 percent excise tax.

– If the funds distributed to the accounts from life settlements are not spent on long-term care expenses, they can remain in the account untaxed until the death of the account holder and that person’s spouse.

H.R. 7203 is a win-win for seniors

The Long-Term Care Account Act is a win for seniors looking for new revenue sources, pairing the prime opportunity of a life settlement with the pronounced need of long-term care. Rising health care costs during retirement are one of the chief reasons people over 65 investigate life settlements, and the passage of this legislation would link the two in a way that will provide tangible benefits to Americans seeking to make the most of their retirement years.

Please don’t hesitate to urge your elected representatives to support this important bill. For more information about life settlements or the pending legislation’s, you can contact a Magna representative by scheduling a call today.


How to Navigate Your Expenses in Retirement

How to Navigate Your Expenses in Retirement - Magna Life Settlements

It’s something every adult understands—saving for retirement is a necessity. But beyond the nebulous idea of “putting money away for later,” how much do we really know about the actual costs incurred by American seniors? Retirement expenses are rising, making it more imperative that people over 65 and their advocates understand the details of income options like life settlements. Following are some of the primary areas where expenses are rising for seniors:


This is the category that hits many senior adults the hardest, because of the obvious surge in medical needs as people age. An article from CNN Money estimates that the average 65-year-old man will spend $189,687 on healthcare in retirement, while an average 65-year-old woman will spend $214,565. Because medical situations and their attendant costs are unpredictable, those expenses are one of the key reasons seniors need to seek alternate sources of income.


Even if healthcare costs can mount fast, housing expenses are the most consistent hits on a senior’s budget. A 2015 study from the Social Security Administration indicates that households with people over 65 spend about 35 percent of their funds on housing, more than twice the amount spent monthly on out-of-pocket healthcare, which came to 13 percent. When all of the costs associated with housing are considered—mortgage or rent payments, utilities, maintenance and furnishings—seniors spend an average of $14,034 annually, according to a breakdown in U.S. News and World Report.

Transportation and Travel

Even though some seniors see a drop in gas costs when they stop working, transportation is still the second-largest expenditure, according to the Social Security Administration study, comprising 15 percent of the average senior’s budget. Transportation costs, as well as money spent on hotels, food and other entertainment, tend to rise in the retirement years because of the extra time for travel in retirement years. To mitigate this expense, seniors should seek travel discounts just for those 65 and older, and they should also take advantage of the freedom to travel during off-peak times when working people are unavailable.

Even though those three categories are typically the ones that cause the most headaches for seniors, other expenses can also be unexpectedly high during retirement—food, education costs for family members, insurance and entertainment, to name a few. Because retirement years can be expensive and seniors want to get the most they can out of that time in life, a life settlement can turn a burdensome unwanted life insurance policy into a valuable asset. To learn more, set up a call with a Magna representative today.

Top 3 Reasons Why Older Americans Are Selling Their Life Insurance for Cash

Top 3 Reasons Why Older Americans Are Selling Their Life Insurance for Cash

Americans have more choices than ever—about television shows, car services, or where to get their news, shop, and book travel. So it would follow that seniors seeking financial help during retirement should be informed about every viable option, including life settlements. This option, which can convert an unneeded life insurance policy into a windfall, is becoming better understood and more popular among the over-65 population. There are three primary reasons for this surge in life settlements:

Scarcity of retirement funding

Retirement funding is so vital that most young adults make decisions regarding their late-in-life income in their ‘20s or ‘30s, putting away money each month so that they can have stability during their golden years. Unfortunately, even those careful efforts often yield insufficient funds for the needs during retirement; one recent study showed that the number of Americans over 75 who filed for bankruptcy tripled from 1991 to 2016. More than 62 percent of the respondents in the study indicated that high medical costs were a key cause of the bankruptcy filing.

New tax laws

Several provisions in the March 2018 Tax Cuts and Jobs Act have made life settlements a more favorable option, including the doubling of the exemption for the estate tax (to $11.2 million per individual and $22.4 million per couple), the addition of a new tax credit for non-child dependents and the inclusion of premiums in the tax basis, which reduces tax rates on life settlements. The new tax code has allowed those who might not have previously qualified for a life settlement to reconsider their situation.

Better education about life settlements

According to research from the Insurance Studies Institute, more than 500,000 seniors lapse their life insurance policy annually, but ninety percent of seniors polled reported that they would have considered a life settlement if they had been made aware of the option. That statistic is likely to change, as life settlements gain a higher profile and financial advisors take seriously their fiduciary responsibility to make clients aware of the settlement opportunity.

Life settlements can convert an unprofitable life insurance policy into a valuable source of income for retirement, so seniors who might have had a change in circumstance in regard to their policy should investigate a life settlement. For a simple calculator that will allow you to assess your eligibility, visit Magna Life Settlements today.

Tax Season Tips for Retirees

tax retiredIt’s the time of year again for filing taxes. While no one wants to pay taxes, this is especially true for retirees who may have limited income or are living on a set budget. No matter the situation, there are options for retirees to help reduce taxes owed and possibly come out with a refund.

Here are some tips to help retirees have an easier tax season:

Free Tax Preparation

Leave the number crunching to the professionals. Free tax preparation is available to people who make $54,000 or less. The Volunteer Income Tax Assistance (VITA) program has IRS-certified volunteers to help people with tax preparation. Those who are 60 years or older may also receive tax help with questions about pension and other retirement-related matters through the Tax Counseling for the Elderly (TCE) program. Locations are available at community and neighborhood centers, libraries, schools, shopping malls and other locations. To locate a VITA or TCE site, call 800-906-9887 or use the online VITA Locator Tool.

Some Medical Expenses Are Tax-Deductible

Medical expenses can include Medicare premiums, long-term care premiums, co-pays at the doctor’s office and the cost of prescription drugs. A deduction on such medical expenses can be claimed in your tax filing if the total out-of-pocket costs exceeds 10% of your adjusted gross income.

Deduct Property Tax and Mortgage Expenses

If you’re a homeowner with an existing mortgage, the mortgage interest and property taxes you pay are deductible in your tax filing. Many times, retirees who are homeowners may also sell their home to downgrade to one that is more suitable for a retirement lifestyle. In that case, there is capital gain exclusion available for up to $500,000.

Certain Donations Are Tax-Deductible

There are many ways to be charitable, including giving away money or donating goods like clothing, a car, or electronic devices to charity. When you itemize the items you donate, you can claim a tax deduction. In some cases, travel to make the donation may also be included in the deduction.

Review “Standard Deduction” or “To Itemize”

The IRS offers the option to file your taxes using a standard deduction or to itemize. The standard deduction for retirees who just turned 65 is $7,900 for a single filer and $15,200 for a couple filing in 2017. The standard deduction is higher for those age 65 and older. Weigh your options in selecting how you want to file your taxes.

Understand How Life Settlement Proceeds are Taxed

If you took a life settlement, you only need to claim income on any proceeds that were more than the cost of the life insurance policy. You can calculate this by subtracting the policy’s cash value from the amount paid in premiums. Learn more about the tax benefits of selling your life insurance policy.

Streamline the Tax Filing Process With E-Filing

If you’re expecting a refund, e-filing your taxes will help speed along the process. One of the benefits of online filing is that there’s no waiting around for a check to come in the mail if you opt for direct deposit, or worse: it getting lost in the mail. Expedite your tax filing by taking care of it electronically.

Tax filing season does not need to be stressful and you can possibly look forward to a refund following some of the tips offered here.


Are Life Settlement Proceeds Taxable?

tax life settlement

Life settlements are a great financial option for people who find they no longer need coverage, whose circumstances have changed or who are experiencing financial hardship. This is especially true for senior citizens whose policy premiums have risen beyond what they may be willing to pay. It’s also a way for someone to put extra funds aside for unforeseen expenses, a luxury item they want or a once-in-a-lifetime trip they would like to take. What people may not consider when thinking about selling their life insurance are the tax benefits.

Reasons to Sell a Life Insurance Policy

Before diving into the tax benefits of selling a policy, it’s important to understand why individuals may want – or need – to sell their life insurance policy. Perhaps the policy was purchased to provide for one’s children, but is no longer needed. The policy owner’s children may have attained their own success, are financially well-off and no longer need the money a life insurance policy would provide. Taking a life settlement would provide the policyholder with the funding to meet the rising cost of medical needs as they age, thereby reducing the risk of becoming a financial burden to their children.

Likewise, life insurance policies purchased with a spouse is another leading reason why policyholders sell their life insurance. If life insurance was purchased with a spouse and the couple has since divorced, the policy may no longer be necessary if the couple does not have children. Additionally, someone may want to sell their policy if their spouse has passed away. Taking a life settlement in these instances would provide the funding for relocating closer to family, traveling or ticking items off a “bucket list.”

The High Cost of Premiums and Medical Care

For many seniors, retirement means living on a budget. High life insurance premiums often times become a major financial burden and are no longer affordable. Rather than letting the policy lapse or accepting the cash surrender value, taking a life settlement can actually result in a significant increase in the amount of cash received. Settlement money can be put towards living expenses, paying off debt or offsetting large medical expenses.

As we age, the cost of medical care increases and may become a financial burden to both the person requiring the care and their spouse or family members. A person may decide they would be better off if they had Medicaid but in order to qualify, they need to liquidate their assets. By taking a life settlement, a person would be able to pay off their medical expenses or put aside money for future medical needs. Liquidating their life insurance policy by taking the life settlement would also increase their chance of being able to file for Medicaid – all excellent reasons for taking a life settlement!

Evaluating the Tax Benefits of a Life Settlement

When considering whether or not taking a life settlement is the right course of action, factor in the taxable aspect of the settlement.

According to IRS Publication 554, when a life insurance policy is sold for cash, one must claim as income any proceeds that are more than the cost of the life insurance policy. This is calculated by subtracting the policy’s cash value from the amount paid in premiums. If the policy’s cash value is less than the amount already paid in premiums, no taxes would be owed. Should the cash value be more than the amount paid in premiums, the difference would be taxable income.

How are life settlements taxed?

Life Settlement Tax - How are Life Settlements Taxed? - Magna Life Settlements

How are Life Settlements Taxed? Learn more with the Magna Life Settlements, Life Settlement Tax Guide today!

Recent landmark cases have brought many Life Settlement tax issues to light as the IRS itself has had issue with defining how life settlements are handled. Below you will find a brief guide covering how Life Settlements are taxed.

What is a life settlement?

A life settlement is a life insurance policy that is no longer needed. When the owner of the policy decides that they no longer want the policy, they have two options available to them. They can let the policy lapse altogether or they can choose to surrender the policy. The life settlement option presents an opportunity to sell the policy to an investor. The policy is generally sold to another party. These policies don’t involve terminally ill patients.

How do life settlements work?

There are actually life settlement companies that acquire these policies. They hold them until they reach the maturity stage, and then the net value of death benefits is collected. If the policy’s benefits aren’t collected, they can be sold to investors. The owner collects a lump sum payment as a part of the transaction. The amount received depends on your age and other conditions in the marketplace, but you usually end up with more than the cash surrender value. You won’t be able to collect the full death benefit amount.

What are the buyer requirements?

The buyer of your policy will take over the premiums for the remainder of your life. They will also pay you a lump sum at the time of the sales transaction. When you die, the death benefit is collected by the buyer of your insurance policy.

How life settlements are taxed?

The proceeds are treated as ordinary income. Whatever the net proceeds from the transaction is valued will be taxed as ordinary income. The amount paid into the premiums will be treated as capital gains. The remaining net proceeds after taxes from surrendering the policy after should be compared to after-tax proceeds received by surrendering the policy to determine if it makes sense to sell the policy.

In theory, the additional proceeds following a life settlement should cover any tax obligations. It is best to speak to a tax advisor prior to making any serious decisions regarding a life settlement. If the policy is not sold for a higher rate, the seller can lose by having to cash out for a lower sum of money.

Magna Life Settlements, Inc. and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

4 Ways to Retire on Your Own Terms

4 Ways to Retire on Your Own Terms - Magna Life Settlements

You’ve worked hard for decades. You’ve put in the hours and saved diligently, and it’s now time to reap the rewards. Starting retirement isn’t as easy as simply stopping going to work and watching the checks roll in, though. You want to maximize your retirement experience. These are your years, and you need to live them on your terms. Here are four ways how:

Trade in that expensive life insurance policy for a settlement

Are life insurance premiums eating up your cash? If you have a life insurance policy you no longer need, a life settlement could be a good option for you. Cashing in your life policy with the insurance company may not give you a large sum, but there are companies out there that will buy your policy from you for a significantly higher amount than the cash value offered by the insurer. They will take over as owner of the policy, while you will walk away with a big check and the comfort in knowing you won’t be paying the insurance company another dime. Being relieved of paying expensive premiums can free up cash that you can use for other purposes, while also giving you a sum of money that you can do whatever you please with.

Guarantee income to Retire on Your Terms

No matter how much you have accumulated in retirement savings, the risk of outliving your income can be a real threat to living in retirement on your own terms. Annuities are unique in that they can mitigate this risk by offering a stream of income guaranteed to last as long as you do. In simple terms, an annuity is a long-term contract between you and an insurance company. In exchange for a lump sum of money or a series of payments, the insurance company will provide income to you for your entire life. The income can begin immediately, or you can defer income for several years, allowing your investment to grow at a set interest rate or based upon the performance of the market. Income can be for your life, the lives of you and your spouse, a certain number of years, or a combination of these features. That can provide some serious peace of mind.

Maximize your Social Security benefits

Knowing you are eligible for Social Security benefits is very rewarding, especially after spending your working life seeing the deductions for those benefits being taken out of your paychecks. What some people don’t know, though, is that it can pay to wait as long as possible before taking Social Security income. Early benefits are typically available at age 62, but the full benefit age is 66 for people born in 1943-1954. Gradually, the full retirement age will rise to 67 for those born in 1960 or later. Don’t leave money on the table. In order to maximize your retirement income, it pays to wait as long as possible.

Be debt-free

Truly living in retirement on your own terms means not being beholden to anyone but yourself. A great way to do that is to reduce or eliminate debt. Mortgages, auto loans, credit cards – these are all common types of debt that keep us trapped. Paying off a mortgage or a car may sound extreme, but why not throw a few extra dollars down toward the principal each month? Starting retirement on the right financial foot is paramount, and doing it with as little debt as possible will relieve a great burden of stress.

What does your ideal retirement look like? We hope that these four ideas will help you transform that vision into a reality.

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