Beware the life insurance tax trap

May 26, 2016

As many new residents discover – sometimes the hard way – US taxpayers with foreign bank accounts and other offshore assets are subject to a raft of special reporting requirements, as well as additional tax charges on foreign investment funds and certain other holdings. Failure to report these assets can result in steep monetary fines, open an individual’s tax return to audit indefinitely and even expose him or her to criminal prosecution – a worry for many as the US Treasury and Justice departments continue their investigations into offshore assets. Many practitioners are wondering if foreign insurance products could be the next target. Life insurance policies with cash surrender values are reportable assets if the issuer is a non-US insurance company. A US taxpayer who owns a non-US policy, purchased abroad, may be unaware that many foreign policies do not qualify as life insurance for US tax purposes. The consequences of owning a non-compliant policy can be quite serious.

To continue reading Henry Bubel, Dahlia Doumar and Carl Merino's article in the May 2016 edition of Private Asset Management, please click here.