Insolvency and COD

Today TaxMama hears from Katherine in the TaxQuips Forum, who gets it.
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“I settled a debt today and am doing a list of assets and liabilities. My question is about assets “Interest in a pension plan.” My husband has been receiving an annuity retirement check for about 20 years. How would we know the value of this?
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We do not get statements. Since it is set up to pass on to me if he dies, how would you ever know the (total balance) “financial interest” or real value of his annuity/pension plan? And what about Social Security?”

Hi Katherine,

Well done! I’m glad to see you working that calculation!

Sometimes, you have a pension plan, like a 401(k) or 403(b) that you can cash out.  Find out if the plan has a cash value, if your husband were to get a lump sum.
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  Sometimes, you cannot cash it out – you can only get monthly payments.
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  Once the principal or beneficiary dies, there is no final lump-sum payout – like many government pensions.

In that case, you put -0- as the cash value on the list of assets.  Same with Social Security. It’s not an asset either – it just provides monthly income in your lifetime.

Katherine did a little more research and learned – that an plan that has been “annuitized” (converted into a permanent stream of income), is no longer treated as an asset, but rather a source of income.

And remember, you can find answers to all kinds of questions about insolvency, debt relief, and other tax issues, free. Where? Where else? At www.TaxMama.com.

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