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Makin' Money

Die soon, ok?

Chris Farrell Dec 21, 2010

No, this isn’t about estate taxes or the death tax.It’s about investors betting when you’ll die. Charming, isn’t it?

That’s pretty much what is going on with a group of investors and companies that cater to the business. It’s unseemly and controversial, but death bonds or vampire bonds have a following. Here’s the basic idea: A holder of a large life insurance policy sells it to a company in return for some upfront money (less than the insurance payout at death). The company, in turn, sells shares in the policy to investors. The investment comes with an estimated life expectancy. Investors pocket a hefty rate of return if the policyholder dies on time or sooner than expected. Their gain shrinks the longer the policyholder lives.

That’s the basic calculus.

The Wall Street Journal takes a skeptical look at a major player, Life Partner Holdings.

In the summer of 2005, a firm called Life Partners Holdings Inc. said Marvin Aslett, an Idaho rancher 79 years old, had two to four years to live.
Marvin Aslett, 84, has outlived a longevity estimate given to investors in his life insurance by Life Partners. It didn’t make this estimate on his behalf but for its customers. The company arranges to buy life-insurance policies from people like Mr. Aslett and sells fractional interests to investors, who collect the death benefits when the insured people die.
The investors in a $2 million policy on Mr. Aslett’s life would have made a tidy return had he died as projected. But more than five years later, the rancher, now 84, says he runs on a treadmill, lifts weights and chops wood, adding that all of his grandparents lived well into their 90s.
“I’m healthy as a horse,” he says. “There’s going to be a lot of disappointed investors.”

Oops. A nice piece of investigative journalism. It’s a business that is dogged by controversy and scandal.

There’s good news for charitably inclined older folks. The new tax law extends the rule that allows taxpayers age 70½ or older to donate up to $100,000 of the annual required minimum distributions from their IRAs directly to a charity for both 2010 and 2011.

Kiplinger’s offers a nuts and bolts take on the manuever. And because Congress was so late in dealing with taxes (I know you’re shocked) those who qualify have until January 31, 2011 to make their 2010 contribution.

Ever wondered about the soundness of the Social Security trust fund? If that’s you, award winning business journalist Allan Sloan says you needn’t wonder because there is no trust fund. Never has been. Doubt him? Well, look at how the bi-partisan payroll tax deal was funded. The jig is up.

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