Alantra Life Settlements

Tax Considerations

As with any financial decision, you need to carefully consider the tax implications of a life or viatical settlement before completing a transaction. The taxation of a life or viatical settlement can be complex and tends to vary by state. Alantra provides the following information as general overview and it cannot be deemed accurate and appropriate for all individuals. For information related to your specific situation, please consult with a tax advisor. Please note that Alantra does not provide tax advice.

Other Important Considerations

Receipt of payment for a life or viatical settlement may affect your eligibility for public assistance programs, such as medical assistance (Medicaid), aid to families with dependent children, supplementary social security income, and AIDS drug assistance programs; and it also may be taxable and subject to claims of your creditors. Before applying for a life settlement, you should consult with the appropriate social services agency concerning how receipt could affect your eligibility and the eligibility of your spouse or dependents. Alantra also recommends that you consult with a tax advisor.

Entering into a life settlement contract may forfeit other rights or benefits such as disability waiver of premium benefits that may exist. Alantra recommends that you consult with a financial advisor before pursuing and completing a life or viatical settlement.

Cash Surrender Value (CSV): the amount available in cash upon cancellation of an insurance policy
Cost Basis: total dollar amount of premiums paid into the policy
Settlement Amount: the purchase price paid to policy owner/seller for the sale of the policy

If CSV = 0:
Taxable income = the settlement amount minus the cost basis of the policy. This amount it subject to capital gain taxes.

If CSV is lower than the cost basis in the policy:
Taxable income = the settlement amount minus the cost basis of the policy. This amount it subject to capital gain taxes.

If the CSV is higher than the cost basis:
Taxable income = the CSV minus the cost basis is treated as ordinary income and taxed according to the policy owners tax bracket + the settlement amount minus the CSV is subject to capital gains taxes

If the cost basis in the policy is higher than the settlement amount:
Taxable income = 0

Per the Health Insurance Portability and Accountability Act of 1996 (HIPAA) , the proceeds of viatical settlements are TAX FREE on the federal level for individuals who are terminally or chronically ill. Terminally ill is defined as being diagnosed by a certified physician to have a life expectancy of under 24 months. Chronically ill is defined as being permanently and severely disabled by an illness.

Most states have declared that payments of viatical settlements are exempt from state taxes. However, viatical settlements are not tax-free in all states. Alantra recommends that you seek the advise of a tax specialist in your state before transacting a viatical settlement.