Viatical Settlement Issue
I have a client whose husband purchased a Viatical Settlement in an IRA many years ago. She is now 70 ½ and they are sending her 5498’s with values in the IRA. However, she is convinced that there is really no value to the investment and we have confirmed that it is completely illiquid. I’m also of the understanding that Viatical’s are not even allowed in IRA’s. They have now sent her an RMD letter stating that she must take a distribution of $1,762. However, there is only $532 in liquid cash in the Viatical that can be sent to her. Even though the client has other liquid IRA’s that she could take the distribution from, she is adamant that she should not have to take this distribution from an investment that has no liquidity and is not even allowed to be in an IRA. I’m curious if you have any insight into this and if there are any private letter rulings you are aware of that address a similar issue.
Permalink Submitted by Alan - IRA critic on Thu, 2017-03-23 18:38
Am not aware of any recent specific guidance or developments on the subject, and there are several open questions here which make this situation a total mess. I assume you are referring to the client’s IRA account but it was her husband’s decision that she purchase this in her self directed IRA? A PLR with uncertain result is likely cost prohibitive here. She probably needs to have someone determine the details on this investment, for example are new policies still being added to a pooled investment? SInce client can distribute the 1762 from any of her IRA accounts under the aggregation rules, her main complaint should be whether the valuation that produces an RMD of 1762 FOR (not necessarily from) this account is invalid. Therefore, she should try and determine if waiting a couple more years will eliminate any of these problems or not, and accordingly whether she should try and sell this investment despite the large loss she would suffer. The IRS has a general policy of requiring IRA owners to hash out the 5498 year end valuation amount with their IRA custodians. She may therefore need legal counsel to put somoe pressure on this custodian.
Permalink Submitted by Matthew Daugherty on Wed, 2017-03-29 17:08
Thank you!