LIFE PARTNERS, INC. BANKRUPTCY
A1: The Trustee believes that the “notes” that LPI sold do not qualify as debt or as an investment in life insurance for U.S tax purposes. Instead, an IRA holder of a note holds only a contract claim to the death benefits payable under the Policies. The Plan is designed to make your interest more secure and compliant with applicable tax law.
A2: Not if your investment remains in an IRA. However, Option 4 (Conversion) would mean that the investment would no longer be through your IRA, so fees would cease once the investment has been distributed out.
We further understand that, subject to potential tax liabilities that may arise, an IRA owner may be able to take the investment the IRA receives as a result of making an election under the Plan out of its IRA by taking a distribution of that investment, including by closing the IRA account entirely. This is a matter that would arise between you as the account holder and your custodian and does not involve Life Partners. Thereafter, you, as the owner of the IRA, could hold the corresponding investment directly. In other words, for example, an IRA investor may also be able to select Option 2 and receive a Position Holder Trust Interest, and then you as the IRA owner can arrange to take a distribution of that interest from your IRA (including potentially by closing your IRA) to remove it from your IRA, subject to potential tax liabilities, and hold it like a cash investor.
Investors should note that this option will only relieve the burden to pay fees to an IRA custodian if this option results in the closure of the IRA account and the distribution of all assets out of the account.
A3: Unfortunately, no. Life Partners does not have any control over IRA custodians or the fees that they charge.
A4: You will have to review your contract to determine whether and how you can change custodians for your IRA account. Life Partners does not require that you use a specific custodian.
A5: Under IRA Option 1, the New IRA Note will pay interest annually, and under Options 2 and 3, the Position Holder Trust and the Creditors’ Trust, respectively, will make distributions as funds are recovered, which may all serve as a source for the satisfaction of your required minimum distribution obligation.
Additionally, subject to any restrictions or fees imposed by the custodian for an IRA account in the name of the Holder of any New IRA Note or IRA Partnership Interest, the Servicing Agreement will permit partial in-kind distributions to assist the Continuing IRA Holders and Assigning IRA Holders in satisfying the required minimum distribution rules, provided all required documentation and transfer fees payable to the Servicing Company or any other transfer agent are submitted in a timely manner. In such event, the owners of the Assigning IRA Holders could be distributed a portion of the IRA Partnership Interests held in their IRAs and the owners of the Continuing IRA Holders could be distributed a portion of the New IRA Notes held in their IRAs. Upon such distribution, the IRA owner would recognize income equal to the fair market value of the property distributed, and would receive a Form 1099-R reporting the distribution. While the IRA owners would receive a partial in-kind distribution to satisfy the required minimum distribution rules, they may not receive sufficient, if any, cash to pay the taxes due on the distribution.
A6: The amount of your filed proof of claim may not affect your valuation for tax purposes. However, you should consult your tax or other advisers with regard to any valuations you will need for tax purposes. Under the Plan, a current investor’s allowed claim(s) will be established in the amount set forth in the Debtor’s bankruptcy schedule F, which was compiled, based on the Debtor’s records, by investor/per position to reflect the amount invested (initial acquisition cost and additional premiums paid since then).
A7: You will have to consult with your personal tax or other advisers with regard to any valuations you will need for tax purposes.
A8: Yes. You must elect Option 1 with respect to any investment related to a policy that has matured in order to receive a payment. If you elect Option 1 as to a policy investment that has matured, your IRA will receive payment of 95% of those maturities in accordance with the Plan, and will not receive a new note under Option 1, pursuant to that election.
A9: No. Your IRA account/custodian will receive the payments, and typically, a distribution from an IRA account does not occur until the custodian pays the money to you individually. You should consult with your tax and other advisers.
A10: Distributions from the pool go to the IRA custodian for deposit to the relevant IRA account, unless you choose to distribute the interest you received in the pool out of the IRA account so that you hold it individually. If you consider this alternative, you should consult with your tax and other advisers.
A11: Under Option 1, the New IRA Notes are projected to return, on average, approximately 84 cents on the dollar for each dollar invested. The pool is projected to return about 85 cents on the dollar for each dollar invested over the life of the portfolio.
A12: So long as you return your Election Form by the deadline (August 23) and pay any past due amounts you owe on the position by the applicable payment deadline, your selection of Option 4 will be effective. The IRA will need to distribute the investment to you, and you will then exchange that investment for the fraction. We will have a process for notifying the custodians of those investors who select Option 4. Each custodian may have its own requirements for distributions, so you will need to check with your custodians.
A13: The Internal Revenue Code and related regulations do not permit IRAs to invest in life insurance.
A14: Yes, all IRA investors who go into the pool will receive K-1s from the IRA Partnership that will be formed pursuant to the plan. The IRA Partnership will issue the K-1 to the IRA custodian, who must then furnish it to the IRA owner.
A15: For IRA Investors that elect Options 1, 2 or 3, no Form 1099-R will be sent to you as the IRA owner as a result of making an election because no distribution is being made to you; the election will only result in a change in the assets of your IRA. IRA Investors who select Option 4 will receive a Form 1099-R reporting the distribution of the position in your IRA to you as the owner. The distribution reported to you on Form 1099-R will be reported on your individual tax return for the tax year in which the distribution is made (which is expected to be 2016).
A16: We have provided general information regarding the tax consequences of Option 4 in Section 26.03(B)(2) and Appendix 3 of the Disclosure Statement for the Joint Plan. Our response to your question is generalized and based on the information available in the Disclosure Statement. To determine how you might be individually impacted and to ask specific tax questions, you should consult with your tax and other advisers.
Option 4 involves the distribution of the position out of your IRA to you as the IRA owner, and then your position is exchanged for a fractional interest to be held by you individually to hold as a Continuing Fractional Holder. The owner of a traditional IRA will recognize income equal to the fair market value of the position distributed to the owner. If you hold your position in a traditional IRA, you will recognize income equal to the fair market value of the Fractional Position distributed to you. If you are under age 59.5, the distribution will be subject to an additional 10% early withdrawal penalty. If you hold your position in a Roth IRA, treatment of the distribution may vary depending on whether it is a qualifying distribution. Generally, the distribution will be nontaxable if it is a qualifying distribution.
IRA Investors who select Option 4 will receive a Form 1099-R reporting the distribution of the position in your IRA to you as the owner. The distribution reported to you on Form 1099-R will be reported on your individual tax return for the tax year in which the distribution is made (which is expected to be 2016).
For further information, see Section 26.03(B)(2) and Appendix 3 of the Disclosure Statement for the Joint Plan.
A17: It will be treated as an IRA, meaning you will generally have 4 options available, with Option 1 being the “New IRA Note” option.
A18: The IRA Partnership will be created by the plan to help protect IRA investors from being viewed as investing in life insurance for U.S. tax purposes. While the IRA Partnership will be a separate legal entity from the Position Holder Trust, the only asset the IRA Partnership will hold will be a beneficial interest in the Position Holder Trust, and as a result, IRAs who are partners in the IRA Partnership will receive distributions from the pool on a pro rata basis along with cash investors in the pool. Thus, the IRA investor will hold an interest in the IRA Partnership, rather than directly in the Position Holder Trust or underlying policies, and will receive payments from the Position Holder Trust through the IRA Partnership as partnership distributions.
A19: Yes, you will need to elect Option 1, no matter whether your position is IRA or Cash.
A20: Option 1.
A21: If you have a pending maturity, when you choose Option 1, if the Joint Plan is confirmed by the court, after the effective date, you will receive 95% of your portion of the maturity (less premiums or fees owed to Life Partners, if any). The remaining 5% of your portion of the maturity will be converted to an interest in the Position Holder Trust, for which you will be entitled to receive distributions from the Position Holder Trust going forward.
A22: The record date for maturities is August 1, 2016, which means that if a policy matures after that, it will be treated according to the original election, even if it matures before the Effective Date.
A24: No. If you elect to go into the pool, your right to payment will no longer be tied to any one policy, but to all policies in the pool. Thus, a pooling investor is likely to start receiving distributions before the average Continuing Holder, but will likely take longer to receive all distributions (unless the investor sells its interests at an earlier time).
A25: The pool will hold the policies and policy related assets and will make distributions as policies in the pool mature. The Creditors’ Trust will hold the assigned investor causes of action and the estates’ causes of action, and will make distributions based on any litigation recoveries. As to investors, the Creditors Trust is designed primarily for former investors – those who have previously lost or abandoned their investments in policies. Creditors’ Trust interests of Investors who elect the Creditors’ Trust will be based on their original invested amount (the initial acquisition cost and additional premiums paid since then, and not their expected returns).
A26: The Trustee cannot tell you which election is the most advantageous for you. Each investor must make his or her own decision for each position. Under the Trustee’s plan, you can make a different election for each fractional position if you so choose. If you do plan to keep certain policies, the Trustee recommends a decision-making process, whereby you would go through your investments, policy by policy, and review the relevant policy data reports, available at www.lpi-policies.com. Additional information is also available at the Committee’s website at www.lifepartnerscommittee.com.
Factors to consider when evaluating which election to make include whether you are a cash or IRA investor; whether your investments are in viatical or life settlements; whether you are willing to continue to make premium payments; whether you want to wait for the policies you invested in to mature; whether the policy you invested in has matured and Life Partners has received the proceeds while Life Partners was in bankruptcy; what type of policy; how old is the insured; what is the LE; and whether a regular cash flow is important to you. Based on these factors and any other available information, you should determine which election option is the best financial choice for each of your positions.
In general, the Plan Proponents formulated Option 1 (Continuing Holder) generally for those investors whose policies have matured but they have not been paid the proceeds, or who, for whatever reason, believe that their policy will mature in the near future and have little risk of being able to afford all continued premiums and fees through maturity. Choosing to be a Continuing Holder otherwise implicates substantial risks, including that the insured will live to a sufficiently advanced age that the continued premium obligations (including potentially escalating premiums) become unsustainable.
The Plan Proponents further formulated Option 2 (pooling) with the expectation that it will provide the greatest benefits to the greatest number of investors, as a whole. Under the pooling Option, an investor is free from any obligation to pay future premiums or servicing fees. You have no risk of lapse or that your insured will live to an age that would render the continued payment of premiums unsustainable, because you are not tied to a single policy. Instead, you will have a beneficial percentage interest in every maturity that the pool generates. Thus, a pooling investor is likely to start receiving distributions before the average Continuing Holder, but will likely take longer to receive all distributions (unless the investor sells its interests at an earlier time).
To learn more about the elections available under the Joint Plan, you are encouraged to consult your own legal counsel, the Disclosure Statement, the Committee’s webinar series, or attend a “town hall” where representatives of the Trustee and the Committee will be available to answer questions about the Joint Plan (schedule and locations available here). Finally, you may also contact the Committee’s counsel to discuss your election options. 214-855-7500 (J. Ong and D. Roossien).
A27: Each policy and person is different, so one person’s decision about which election option or options fits his policies might not apply to another’s decision. You should consider, based on your own circumstances and the positions you hold, what election option makes the best financial sense for you.
A28: Not with respect to those fractional positions you have abandoned. If you voluntarily abandoned all of your fractional positions, you are not a class member and will not be able to make the elections for those fractional positions. If you voluntarily abandoned only some of your fractional positions, then you are a class member but only with respect to the fractional positions that you did not abandon.
A29: Two Subclasses make up the Settlement Class in this case: the “Ownership Settlement Subclass” and the “Rescission Settlement Subclass.”
The Ownership Settlement Subclass is made up of any person or entity who is a current investor in an LPI-issued viatical settlement or life settlement investment who does not owe LPI a “pre-petition default amount” and who is not Linda Robinson-Pardo or Paget Holdings. Investors who are uncertain whether they are an Ownership Settlement Subclass Member, should contact Class Counsel Keith Langston for guidance.
The Rescission Settlement Subclass is made up of anybody who is a member of the Ownership Settlement Subclass and who is not listed on Appendix A to the Class Action Settlement Agreement and is not a Qualified Plan Holder. Investors who are uncertain whether they are a Rescission Settlement Subclass Member should contact Class Counsel Keith Langston for guidance. You can identify what class the Plan Proponents have placed your relevant claim(s) in by looking at the title of any Ballot you have been provided.
A30: The assignment of claims is part of the class action settlement. There are multiple lawsuits pending against the former management of Life Partners, the former board, licensees, shareholders, and others who received money from Life Partners. If the Trustee/Committee Plan is confirmed, a Creditors’ Trust will be created to continue these lawsuits and additionally, the causes of action you may have otherwise brought on your own related to Life Partners’ pre-bankruptcy activities will be assigned to this Creditors’ Trust to also be pursued by the Creditors’ Trust, and those certain individual investors in return will receive an interest in the Creditors’ Trust (which is detailed further in the Class Settlement Agreement). This interest would be separate from any interest you would receive from the elections related to your investment should you choose the Rescission Election (Option 3). If you are ok with this assignment and the Creditors’ Trust pursuing your causes of action, then DO NOT check the box for Item #3. Your claims will automatically be assigned (along with those of other assigning investors). This allows the Creditors’ Trust to pursue causes of action collectively, on behalf of the estate and all investors making this assignment.
If you do not want to assign your causes of action because you would prefer to pursue them yourself at your own expense, or for any other reason, then check the box for Item #3. If you check the box, certain of your causes of action will not be assigned, and you also will not receive an interest in the Creditors’ Trust on account of that assignment.
A31: You can send an email to the balloting agent Epiq at LPVOTE@epiqsystems.com. You should also notify LPI customer service by phone at (800) 368-5569.
A32: You can login at www.lpi-policies.com to access a current statement of the fractional positions that you own. If you have additional questions, or think that the information on the website is incorrect, you can contact LPI customer service by phone at (800) 368-5569 and the appropriate person will answer your questions.
A33: No maturity funds have been paid out to investors during the bankruptcy. The date that a policy matures is not the date that Life Partners receives the policy proceeds. There is usually a delay of several months between when the policy matures and when the life insurance company issues payment to the escrow companies. Thus, even if a policy related to your investment matured before Life Partners filed for bankruptcy, the proceeds may not have been received until after Life Partners filed for bankruptcy. The Plan Proponents intend to pay 95% of maturity proceeds that have been received by Life Partners, to Continuing Holders in accordance with the terms of the Plan.
A34: Contact LPI customer service by phone at (800) 368-5569. Please include all information and documentation showing that you believe you do not owe the premiums included on your invoice.
A35: To the Trustee’s knowledge, Brian Pardo is not in jail and he has not been charged with a crime by any law enforcement agency. However, the Trustee has filed a lawsuit against Brian Pardo seeking to clawback funds and recover damages related to the pre-petition fraudulent scheme.
A36: If you have documents or communications that you believe show that you were a victim of fraud or misstatements by your licensee or another person associated with Life Partners, you can send those documents to Class Counsel at firstname.lastname@example.org and he will make sure that they are given to the appropriate person.
A37: As there are over 22,000 current investors, Class Counsel, the Trustee, and the Committee ask that you be patient; someone is working to answer your question as soon as possible. However, do not hesitate to send your question again.
Q38: You should return the election forms for your positions for both plans, regardless of whether you vote to accept or reject that plan. This is so in the event either plan is successful, you have provided information as to how you want your interests treated.
A39: You should call the customer service number on their ballot to ask Prime Clerk your questions regarding your Transparency ballot.
A40: Epiq can re-send the ballot and election form. When you return the form, include a short written statement that you would like for this election form to replace your prior form.
You will need to address questions regarding the Transparency ballot to Transparency Alliance or Prime Clerk. Their contact information should be on the Transparency ballot.
A41: The premium predictions were made using information from the insurance companies, industry data, and an expert. The lag is often due to cash surrender value in a particular policy. They are just predictions, but we are comfortable with them.
A42: The interests will be transferrable, but because the investments have been deemed to be securities by the Texas Supreme Court, sale of the investment will need to be undertaken carefully. To the extent you have further questions as to the potential sale of a resulting investment, you should contact your tax or other financial professional.
Q43: You can vote to accept or reject both plans independently. If you prefer the Trustee’s Plan, the Trustee recommends you vote to accept the Trustee’s Plan and to reject the Transparency Plan. Also, you should return the election forms for your positions for both plans, regardless of whether you vote to accept or reject that plan. This is so in the event either plan is successful, you have provided information as to how you want your interests treated.
Maturity Report: http://lphitrustee.com/2016/08/01/update-on-maturities-as-of-080116/
Individual policy information: https://www.lpi-policies.com/SSL/login.aspx