The Challenge:

We were working with a financial planner who had a client with an old Variable Universal Life Insurance Policy.  Through the client's work with the planner they agreed there was no longer a need for life insurance.  Before surrendering the policy without knowing the tax implications, the planner asked us to review the policy and provide guidance.

THE ANALYSIS:

We had the client sign a letter of authorization allowing us to become the broker of record on the policy which enabled us to perform a complete analysis of the policy. Through the analysis we discovered the cost basis in the policy was well below the cash surrender value.  In the event the client lapsed or surrendered the policy, a significant taxable event would have occurred.

The Recommendation:

We reviewed the completed analysis with the planner and recommended if the client did not have a need for insurance and wanted to avoid a taxable event, the client would be able to perform a 1035 exchange to a no/low load annuity.  The planner presented the findings to the client and they agreed the annuity was the best option for the client's situation.  The paperwork and the transaction all took place in the planner's office providing a simple resolution to a complex situation.