DOL Opinion Validates Use of Qualified Plan Ins. National Underwriter (Life/Health) (10/23/00) Vol. 140, No. 43 p.7; Commito, Thomas F.
Recently, the Department of Labor (DOL) gave an
advisory opinion (2000-10A) that has helped to validate the
estate planning technique called "Qualified Plan Insurance
Partnerships (QPIP)." This technique was developed to avoid
problems that relate to the advantageous use of qualified plan
and IRA assets. These assets are tricky because of the double
taxation that occurs since they are considered "Income in Respect
of a Descendent," or IRD, property. As such, the assets are
fully taxable for estate tax purposes and are taxable income to
the beneficiary. QPIP invests the assets in a limited
partnership or limited liability company, which in turn buys life
insurance. Since the assets are invested in the LP or LLC, there
is no taxable distribution, so no income tax needs to be paid.
The DOL Advisory Opinion 2000--10A is important because it
examines whether or not an IRA can invest in an LP or LLC. In
the DOL case, it did not characterize the investment of the IRA
as a "prohibited transaction," emphasizing that the actual
management of the assets was through an outside investment firm.
If the DOL approves the opinion, it should serve to strengthen
interest and stimulate discussion of the QPIP technique.