Life Insurance Issue

[Denne]

I am still trying to figure out whether there is a difference in the handling of a Life Insurance policy between a Sub S and and LLC. The members are interested in changing from an LLC to a Sub S for the SE savings. They currently have a life insurance policy that would pay a percentage upon the death of either member to the business and the remainder of the policy to the spouse. The agent told them that a corporation would be required to pay the insurance benefit to the spouses by way of wages or a taxable distribution. Is there a reason that the policy can't just state they are the beneficiary and pay them directly. I am not sure why the agent feels that the handling would be different between an LLC and a Corporation.....am I missing something?

I appreciaty your assistance on this matter........

[OldJack]

I would guess that the insurance agent is trying to say that the tax-free proceeds received by a LLC-Scorp would possibly be taxable when paid out to the spouse. I don't believe that would be true since it is tax-free to the LLC-Scorp and distributions of income are tax-free from a LLC-Scorp.

[Denne]

I would guess that the insurance agent is trying to say that the tax-free proceeds received by a LLC-Scorp would possibly be taxable when paid out to the spouse. I don't believe that would be true since it is tax-free to the LLC-Scorp and distributions of income are tax-free from a LLC-Scorp.

Thanks Jack..... You are seeing it the same way as I am. I see no reason there can't be more than one beneficiary to begin with, but still see no reason they would need to pay income taxes just because they are a Corporation, even if the Corporation is the primary beneficiary.

Thanks again ;~)