FE Question on Converting Existing Policy

[WCMason]

If they are on Medicaid there is. It's the same thing as giving money out of their bank account away to their kids.

They need to go RPU on the policy, irrevocably assign the ownership of the policy to a funeral home. That is day one exempt from Medicaid.

Then if they want to leave some money to their kids they can start a NEW policy with the insured never being the owner and it will never cause a problem for Medicaid.

I'm pretty sure she's only MSP eligible--or was--not low enough for Medicaid. Same asset problem in that case?

Sent from my iPad using InsForums

 

[Indy007]

Would that 1035 be considered transferring assets?

The 1035 itself would not. But, after new policy with higher DB is issued, she could irrevocably assign to a funeral home the same as if she just did a RPU on current policy and did the same thing.

She'd get a nicer funeral, the OP would earn a commission, the $ would be out of her name. Sounds like a win-win.

Then if she wanted a new policy to leave $ to kids, she could still do what Newby suggested and put daughter as owner on new policy so it doesn't affect Medicaid.

 

[Newby]

The 1035 itself would not. But, after new policy with higher DB is issued, she could irrevocably assign to a funeral home the same as if she just did a RPU on current policy and did the same thing.

She'd get a nicer funeral, the OP would earn a commission, the $ would be out of her name. Sounds like a win-win.

Doesn't the owner have to be the same person on a 1035? I know the insured does.

Also even if you could 1035 to a different owner, that only solves it from being a taxable event. It doesn't change the fact that they are giving away assets to qualify for Medicaid (if they end up on Medicaid.)

The other question is, do you find a LOT of policies where a new single pay has a lot more death benefit than the RPU?

 

[Indy007]

Doesn't the owner have to be the same person on a 1035? I know the insured does.

Also even if you could 1035 to a different owner, that only solves it from being a taxable event. It doesn't change the fact that they are giving away assets to qualify for Medicaid (if they end up on Medicaid.)

The other question is, do you find a LOT of policies where a new single pay has a lot more death benefit than the RPU?

If she were to do the 1035, she'd need to be the owner. Once the new policy is issued, she could irrevocably assign ownership to a funeral home. I haven't run #'s as to what she'd get for DB on SPWL, so it may or may not work. If she could get a higher DB, great.

Actually, yes I find quite a few of those older policies that can be 1035'd to the benefit of the client. If you can increase their DB and save them whatever premium they were paying, why not?

 

[WinoBlues]

Seems to me RdPd and a new policy solves everything with no contestabilty for the funeral. And no question as to transfer.

 

[Indy007]

Either would work. The option I suggested is more work, but is more beneficial IMO.

Lets hypothetically say she did just RPU the current policy. Say that got her $10,000, assigned to funeral home to prepay a $10,000 funeral. She then takes out a new $10,000 policy with daughter as owner for $80/mo. (Roughly $1,000 commission).

Or

Hypothetically say she did 1035 into new SPWL with her as owner. Say that got her $14,000 DB. (Roughly $1,218 commission) She then irrevocably assigned to funeral home to prepay funeral. She then takes out a new $10,000 policy with daughter as owner for $80/mo (roughly $1,000 commission).

The 1035 option would "hypothetically" get her a $4,000 nicer funeral, and earn agent $1,218 more in commission, while still accomplishing the same goal of getting the CV out of her name to qualify for assistance.

 

[WinoBlues]

Yeah both sound like options depending on insurability, contestabilty, if they have a premium goal or death benefit goal.

Good discussion.

 

[Newby]

Either would work. The option I suggested is more work, but is more beneficial IMO.

Lets hypothetically say she did just RPU the current policy. Say that got her $10,000, assigned to funeral home to prepay a $10,000 funeral. She then takes out a new $10,000 policy with daughter as owner for $80/mo. (Roughly $1,000 commission).

Or

Hypothetically say she did 1035 into new SPWL with her as owner. Say that got her $14,000 DB. (Roughly $1,218 commission) She then irrevocably assigned to funeral home to prepay funeral. She then takes out a new $10,000 policy with daughter as owner for $80/mo (roughly $1,000 commission).

The 1035 option would "hypothetically" get her a $4,000 nicer funeral, and earn agent $1,218 more in commission, while still accomplishing the same goal of getting the CV out of her name to qualify for assistance.

I agree. But I just don't see many older policies that can 1035 to a new single premium and have a higher face than the RPU option.

But if there are some out there, it would be a good option.

 

[usakr]

Doesn't using the cash values to purchase a RPU automatically qualify her since she wouldn't have anymore cash values?

 

[Indy007]

Doesn't using the cash values to purchase a RPU automatically qualify her since she wouldn't have anymore cash values?

She'd still have access to the CV if she made RPU or even SPWL. She would need to irrevocable assign ownership to a funeral home.