Can an IRA invest in a fixed beneficial interest in the benefits payable in life insurance policies?

I am aware that an IRA cannot own a life insurance policy, a prohibited transaction.

Facts are:

The life settlement company acquires life insurance policies (the company which purchased the policy from the original owner), which has the right to collect the benefits payable under the policy when the insured dies. The life settlement company also has the right to sell the policy to another party. Fixed beneficial fractional interests in the policy are sold to Participants.

The life insurance policies have been acquired from previous life settlement transactions. The Participant acquires certain fixed beneficial interests in a trust which owns the life insurance policies. When the insured person dies and the affected insurer pays the policy benefit, the Participant receives the percentage of the death benefit in which such Participant holds a fixed beneficial interest.

Purchased life insurance policies are owned by a Settlement Trust, a Collateral Trust, for the benefit of Participants. The trustee of the trust is an LLC.

Can an IRA be a Participant without it being a prohibited transaction?

The fact the IRA does not own the policy, the Settlement Trust owns the policy, is the only way I see the possibility it is not a “Prohibited Transaction”.

The terminology above has been condensed from information contained in a Private Placement Memorandum for “The Sale of Beneficial Fractional Interests in the Benefits of Life Insurance Policies”.

Your opinions please!

I’m sure others have raised a similar question/issue.

Thanks,

Keith Youngren, CPA