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Notes -
There might be another wrinkle in the life insurance case. I think that example as a use of life insurance is on FINRA exams. Which is a self-regulatory organization. Which are sort of government sponsored but run by industry. So they can ban you from the industry and make you unhirable but you can’t sue for them for antitrust etc. If my recollection is correct you have this sort of government agency teaching their bankers that this use of insurance was correct and would produce those tax benefits. Now you have another government agency saying nope that’s wrong pay us.
Also it’s a bit weird because before the guy died the company did not have that money. After they did. But what occurred first? The guy died and that’s the value then the company gets 3 million because he died? Or the company gets 3 million because the guy died and now the company is worth more? It’s seems like a simultaneous event.
“A self-regulatory organization (SRO) is an organization that exercises some degree of regulatory authority over an industry or profession. The regulatory authority could exist in place of government regulation, or applied in addition to government regulation. The ability of an SRO to exercise regulatory authority does not necessarily derive from a grant of authority from the government.“
I think it’s clear these type of organizations could not exists without government support based on this definition. So I think it’s clear that things like FINRA are basically government run by industry. A lot like unions that wouldn’t exists without the government protecting them.
The company didn’t have cash before the guy died but it did have an asset in the form of the insurance contract.
But what is the insurance contract worth before he dies? They could be 20 year olds and hence the expected value is 0. They could even be 70 year olds and I guess you would say it has high expected value. They might owe future premiums which means the insurance has no guarantee of having value etc.
That the expected payout was a company asset wasn't at issue in this case. The issue was whether the redemption obligation created a liability that cancelled out that asset.
Yea maybe. Something seems off on how they structured it.
Also, note the estate sold the shares to the company for $3 million. So it seems like the estate got $3 million.
The surviving brother got a big gain but not thru the estate since the shares were sold to the estate for $3 million. It would seem as though the estate would have a short term capital loss if the asset was worth 5+ but sold the asset for $3.
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Agreed. The value is factual based on how much is left to pay and life expectancy. I’m not making a claim on how much the asset was worth but that likely there was some value.
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