Tax Facts

45 / Is there any tax liability when a policyholder exchanges a life insurance policy insuring one life for a policy insuring two lives?

Updated: October 02, 2024 at 01:55 PM


In a private ruling, the IRS concluded that exchanges of policies insuring a single life for a policy insuring two lives do not qualify for nonrecognition treatment under IRC Section 1035. The IRS reached this outcome in all of the following situations:
(1)     Spouse A exchanges a policy insuring only Spouse A’s life for a policy that insures the lives of both Spouse A and Spouse B;

(2)     Spouse A exchanges two life insurance policies, one of which insures Spouse A and the other of which insures Spouse B, for a single second-to-die policy insuring the lives of both Spouse A and Spouse B;

(3)     Spouse A and Spouse B jointly exchange separate policies each of which insures the life of one spouse for a single jointly-owned second-to-die policy that insures the lives of both Spouse A and Spouse B;

(4)     A trust owns and exchanges a policy insuring the life of Spouse A for a policy that insures the lives of both Spouse A and Spouse B; and

(5)     A trust owns and exchanges two life insurance policies, one of which insures Spouse A and the other of which insures Spouse B, for a single second-to-die policy insuring the lives of both Spouse A and Spouse B.1






1.     Let. Rul. 9542037.

Tax Facts Premium Tools
Calculators
100+ calculators specifically designed to help you easily assist clients with specific planning situations and calculations.
Practice Guidance
Designed to help you discover new ways for which to build and maintain client relationships.
Concepts Illustrated
Specifically designed to help you easily assist clients with specific planning situations and calculations.
Tax Facts Archives
Access to the entire library of Tax Facts dating back to 2012 allowing you to look up the exact tax figures from prior years.