Help with VAL policy, UTMA accounts, and EE/E Savings Bonds

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cmlim
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Joined: Fri Nov 07, 2014 9:48 am

Help with VAL policy, UTMA accounts, and EE/E Savings Bonds

Post by cmlim »

All,

Thanks for having this board as a resource. I've learned a lot in the last few months. Finally I have a couple of questions that I need input on. My parents finally retired and sold their house and I got lots of boxes that I'm sorting though. I've found some financial paperwork that I'm uncertain what to do with.

Variable Appreciable Life Policy - this policy (scam) was opened for me in 1993 and is still in good standing. There's a death benefit of 93k and a 10k cash value as of the end of 2014. I'm honestly surprised my parents got sold this policy, but what's done is done. I don't need the extra insurance since I have a term policy. I'm debating cashing it out since the surrender period has lapsed or doing the 1035 exchange to Vanguard. The latter seems more appealing since my 401k is maxed out and I can't contribute to a Roth. Is there any option I'm missing here?

UTMA accounts - There are 2 UTMA accounts with UBS in my name. I'm well over the age of majority, but I have to get my parents to sign the transfer of ownership. As explained to me on the phone call and the document they emailed me, this transfer would be a liquidation of the account. Would this trigger a taxable event for them or me?

Savings Bonds - There's a stack of savings bonds (mostly EE and 1 E) that my parents had accumulated but got lost in a drawer. They are owner and I am the beneficiary. Only the E bond has matured, but the EEs are coming due in a few years. As I understand it, the tax on interest is due the bond matures and the owner is responsible for paying that. What what I have read any transfer of ownership on these bonds will trigger taxable events for my parents. Given that they are retired, I'd like to minimize that. Is there anyway to conduct a transfer or add myself as co-owner without a tax trigger?

Thanks so much in advance for your help.
Last edited by cmlim on Sun Apr 26, 2015 7:03 am, edited 1 time in total.
ieee488
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Re: Input requested on unwinding accounts my parents opened

Post by ieee488 »

If you can, you might want to edit your subject line to specifically state Variable Appreciable Life Policy, UMTA, EE and E savings bonds
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sometimesinvestor
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Re: Input requested on unwinding accounts my parents opened

Post by sometimesinvestor »

you can reregister the utma accounts to your own name which will not be a taxable event .However most here would suggest moving those funds to a vanguard index funds.It may be that the most sensible strategy is to sell them overa two oAs to the insurance policy again the best approach might be a 1035 exchange to a vanguard variable annuity.
Last edited by sometimesinvestor on Sat Apr 25, 2015 6:51 pm, edited 1 time in total.
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Watty
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Re: Input requested on unwinding accounts my parents opened

Post by Watty »

On the savings bonds it would be good to do some more research because;

1) If your parents thought they lost them, they might have already have gone through the process to replace or cash a lost bond.

2) There could be other lost savings bonds that are not in that stack.
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Epsilon Delta
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Re: Input requested on unwinding accounts my parents opened

Post by Epsilon Delta »

The UTMA accounts would normally be taxable to you all along. If you've been filing tax returns and don't know whats in them you have a mess on your hands.
Topic Author
cmlim
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Joined: Fri Nov 07, 2014 9:48 am

Re: Help with VAL policy, UTMA accounts, and EE/E Savings Bo

Post by cmlim »

Epsilon Delta wrote:The UTMA accounts would normally be taxable to you all along. If you've been filing tax returns and don't know whats in them you have a mess on your hands.
Yeah, that's exactly what I am afraid of here. I'm meeting with my CPA shortly about this potential mess.
sometimesinvestor wrote:you can reregister the utma accounts to your own name which will not be a taxable event .However most here would suggest moving those funds to a vanguard index funds.It may be that the most sensible strategy is to sell them overa two oAs to the insurance policy again the best approach might be a 1035 exchange to a vanguard variable annuity.
Like most here, I'm extremely skeptical about the value of annuity policies, but it seems like the only reasonable choice given that I maximize my 401k and an ineligible for a Roth contributions. Hopefully, I can start a solo 401(k) and proceed and a backdoor Roth to get more tax-advantaged account space.
dhodson
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Re: Help with VAL policy, UTMA accounts, and EE/E Savings Bo

Post by dhodson »

For the life insurance policy, id request an in force illustration. Id also compare the current surrender value to basis. if close then id just surrender the thing assuming you dont want to keep it until death (looking at the illustration may provide some guidance on that).
If you surrender and have a gain then all gains are taxed as income but thats the way it will eventually be with the 1035 exchange to an annuity as well. Unless you highly value the insurance component or dont want to currently pay the taxes on the gain then id likely surrender. In a taxable you can tax loss harvest, get a step up in basis at death, pay capital gains instead of income rates on gains, have more flexibility on when to use the money, and lower costs.
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dodecahedron
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Re: Help with VAL policy, UTMA accounts, and EE/E Savings Bo

Post by dodecahedron »

As far as the EE/E savings bonds, the fact your parents designated you as the "beneficiary" on those bonds does not necessarily mean that they wanted you to have access to those funds while they were still living. It would be somewhat presumptuous of you to suggest that you should be designated as co-owner during their lives. A beneficiary designation on a savings bond is similar to a beneficiary designation on an IRA or 401k. It doesn't generally mean the owner wants the beneficiary to have the funds during the owner's lifetime. The assets belong to and can be used by the owner until death. Upon the death of the owner, they become the property of the beneficiary.

https://www.treasurydirect.gov/indiv/re ... gister.htm

Your parents should redeem the E bond that has matured (and invest it elsewhere or spend it or give it to you or whoever, their choice.) They will owe tax on all the accrued interest (unless they have a dependent with qualified education expenses? or unless they themselves are interested in getting some education during their retirement? Don't laugh--I am enjoying grad school in my 60s.)

Rinse and repeat with the EE bonds as they mature in the next few years.
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powermega
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Re: Help with VAL policy, UTMA accounts, and EE/E Savings Bo

Post by powermega »

A 1035 exchange to an annuity only makes sense if you currently have a loss on the life insurance policy. If you have a gain, and you don't need the insurance companies, then you might as well surrender the policy.
Even a stopped clock is right twice a day.
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KlingKlang
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Re: Help with VAL policy, UTMA accounts, and EE/E Savings Bo

Post by KlingKlang »

Your parents should redeem the E bond that has matured (and invest it elsewhere or spend it or give it to you or whoever, their choice.) They will owe tax on all the accrued interest (unless they have a dependent with qualified education expenses
Only EE/I Savings Bonds purchased in 1990 or later qualify for the qualified education expense exclusion, so using the E bond is out.
Grt2bOutdoors
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Re: Help with VAL policy, UTMA accounts, and EE/E Savings Bo

Post by Grt2bOutdoors »

cmlim wrote:All,

Thanks for having this board as a resource. I've learned a lot in the last few months. Finally I have a couple of questions that I need input on. My parents finally retired and sold their house and I got lots of boxes that I'm sorting though. I've found some financial paperwork that I'm uncertain what to do with.

Variable Appreciable Life Policy - this policy (scam) was opened for me in 1993 and is still in good standing. There's a death benefit of 93k and a 10k cash value as of the end of 2014. I'm honestly surprised my parents got sold this policy, but what's done is done. I don't need the extra insurance since I have a term policy. I'm debating cashing it out since the surrender period has lapsed or doing the 1035 exchange to Vanguard. The latter seems more appealing since my 401k is maxed out and I can't contribute to a Roth. Is there any option I'm missing here?

Thanks so much in advance for your help.
Ah, yes, the infamous VAL. :oops: If it's any consolation to you I got scammed on this same exact policy back in 1996, but I saw the light and surrendered it before my fall into that black hole got any deeper than it already was. I was fortunate enough to have only lost $2K on that thing, had I stayed in longer I'm sure I'd be in the hole for 5 digits. As DHodson indicated, I'd be inclined to just surrender the policy and get your cash value out of it, if you are either in a loss or break-even position.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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