Transfer-for-value rule
Certified Financial Planner glossary · Certified Financial Planner
Definition
The provision destroying the income tax exclusion of death proceeds where a policy is transferred for consideration, subject to five safe harbors.
Transfer-for-value rule in plain English
A life policy is sold or otherwise transferred for consideration, and the buyer expects death proceeds to arrive income-tax free. The transfer-for-value rule destroys that income-tax exclusion when a policy is transferred for valuable consideration, subject to five safe harbors such as transfers to the insured, a partner, a partnership, a corporation in which the insured is a shareholder or officer, or a transferee whose basis is determined by reference to the transferor's basis. Outside a safe harbor, expect ordinary income exposure on part of the proceeds.
Practice Transfer-for-value rule
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