I had a client, a homebuilder, pose an interesting question today. He is in the process of updating his life insurance. He has a term policy to pay off his home and personal debts and wants similar coverage for his business. He wants a policy to pay off his business loans so his wife can inherit his property without debt. I see that life insurance is not deductible if it directly or indirectly benefits the shareholder. The question is, "Would credit life insurance bought and paid for by the bank and added to his debt service be a deduction to his business?"
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In other words, a democratic government is the only one in which those who vote for a tax can escape the obligation to pay it.
Alexis de Tocqueville -
how is the business organized?
Having a policy in place to pay off the biz loans may not make the most sense. Maybe he can have a buy sell with another builder funded by life insurance that the other builder will buy his business at his death from his surviving spouse for a specified sum, thus she gets out from the debt and has liquid cash to spend.
Have you client call or email me and we can work out a plan that would be mutually beneficial to all.
Sea-Tax, stay away! j/k
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Builder is an S-Corp
He is very tax conscious and always looking for a deduction. As I thought about the question it occurred to me that if the corporation pays the insurance and the proceeds conferred debt relief, then the proceeds would be taxable income to the corporation, right?
The buy-sell idea is interesting but he is so protective of his business I doubt he would consider that.In other words, a democratic government is the only one in which those who vote for a tax can escape the obligation to pay it.
Alexis de TocquevilleComment
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Credit Life
Is usually a very poor investment.
Secondly it is not deductible. And when it pays out it is not taxable.Comment
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