LIFE PARTNERS POSITION HOLDER TRUST
Frequently Asked Questions Page Last Updated: May 30, 2017
FREQUENTLY ASKED QUESTIONS
1. How do I contact the Trustee with questions?
For all questions regarding status of accounts or general inquiries, please contact Magna Servicing first (see Contact Information page). If Magna is not able to answer your question, your inquiry will be forwarded to the Trustee.
For all questions regarding the plan or status of the trust, please contact firstname.lastname@example.org.
We ask for your patience through the transition process. Magna, the Trustee and his staff are extremely busy with the transition of all 3,400 policies and 100,000 positions from LPI to the PHT. The call volume has been also very high. The customer service staff at Magna is answering as many calls as they can and returning the rest as quickly as possible. All of your questions are important to the Trustee and will be answered.
2. When will the replacement for LPI Policies.com be available?
We expect that the new investor portal will be available in July or August 2017. In the meantime, investors will receive account statements showing their holdings.
3. How can I authorize my investment advisor to receive information about my account?
In order for Magna or the Trustee's staff to provide information about your account to an advisor, you and your advisor must execute the "Confidentiality and Non-Disclosure Form" and the "Network Resources Access Form." Completed forms should be sent to Magna at email@example.com. Copies of the forms are located on the "Forms" page.
1. What were the options available to me when I elected last year?
Option 1 – Continuing Fractional Holder
The investor will receive a Continuing Fractional Holder Certificate equal to 95% of the original position and PHT units equivalent to 5% of the original position.
To be eligible for this election, all PPDA owed on the position must have been paid by December 1, 2016 and all Catch-Up must have been paid by February 25, 2017.
Option 2 – Pool (receive PHT units)
The investor will receive PHT units equivalent to 100% of the original position. Units will be allocated at 1 unit per $1 of expected death benefit.
Option 3 – Rescission (receive an interest in the Creditors’ Trust)
Option 1 – Continuing IRA Holder (receive a New IRA Note)
The investor will receive a New IRA Note with a principal amount equal to 32% of the expected net death benefit of the position with a term of 15 years bearing interest at 3% annually; and IRA Partnership Units equivalent to 5% of the original position.
Option 2 – Pool (receive IRA Partnership units)
The investor will receive IRA Partnership Units equivalent to 100% of the original position. Units will be allocated at 1 unit per $1 of expected death benefit.
Option 3 – Rescission (receive an interest in the Creditors’ Trust)
Option 4 – Continuing Fraction Holder (requires transferring the investment out of the IRA)
Upon the transfer of the position out of the IRA, the investor will become a Continuing Fractional Holder (Cash Option 1) with respect to that position.
The transfer must be completed by May 15, 2017 and the investor must request the transfer by May 5, 2017.
The Bankruptcy Trustee and the Creditors’ Committee discussed these options in detail in the plan disclosure documents. In addition, they summarized the options in PowerPoints used in investor meetings and posted on the Bankruptcy Trustee’s website. An example of one of these PowerPoints is available [here] and on the Plan Documents page.
2. May I change my election?
No. The elections on the ballot were final on the Election Deadline in August 2016.
3. What if my election was recorded incorrectly or there was some sort of problem with my election?
You will need to file an Election Dispute with the Trustee. After your dispute is filed, the Trustee or his counsel will contact you in order to resolve your issue.
4. How do I file an election dispute?
To file a dispute, please send a letter to the Trustee explaining your issue and enclosing any documents that support your position. Disputes should be sent to the Trustee at the following address:
Magna Servicing, LLC
P.O. Box 23226
Waco, TX 76702
5. What will the PHT Trustee consider in responding to my election dispute?
The PHT Trustee will consider whatever information you provide to him as well as the information provided by Epiq and the information contained in LPI’s records.
Please note that the PHT Trustee will only correct elections; he will not allow investors to change their elections. If LPI or Epiq made a mistake so that an investor’s election was not properly counted, then the Trustee will agree to correct the election. Usually this means that (i) the investor did not receive a ballot when he or she should have received a ballot, (ii) Epiq did not count a ballot that it received or (iii) Epiq miscounted a ballot. The PHT Trustee will not agree to “correct” an election based on the investor’s desire to change his or her election for whatever reason or the investor’s claim the he or she made a mistake on his or her ballot.
Why? The Court approved both the materials used to solicit votes from investors (including the election of options) and the results of the election. Accordingly, the Court found that the investors had sufficient information and received a sufficient explanation to understand their votes in favor of or against the Plan as well as the election of options under the Plan. The PHT Trustee will not and cannot second guess the Court’s rulings. In addition, time has passed and the PHT has taken actions based on the election. The election is complete and cannot be revisited.
1. What process must I go through to challenge an action taken by the PHT Trustee in connection with my investment?
The Confirmation Order requires that anyone with a dispute against the PHT use the Dispute Resolution Process contained in the PHT Trust Agreement. While you should consult the PHT Trust Agreement for the details, the Dispute Resolution Process can be summarized as follows:
· The investor must give written notice of the dispute to the Trustee describing the basis for the dispute and providing copies of any documents or other evidence supporting the investor’s position.
· The Trustee will contact the investor to discuss the dispute and to attempt to resolve it. At that time, he will provide a copy of the Dispute Resolution Process to the investor.
· If the investor and the Trustee are unable to agree within 45 days after the Trustee provides a copy of the Dispute Resolution Process to the investor, the investor can request that the dispute be submitted to a non-binding mediation conducted by an independent mediator or the Trust Board.
· If the investor and the Trustee are unable to settle the dispute at mediation, then the investor may ask the Bankruptcy Court to resolve the dispute.
· The investor must bear his or her own costs in pursuing the dispute including attorney’s fees and the investor’s share of any mediation fees.
The Dispute Resolution Process is § 4.6 on page 13 of the PHT Trust Agreement. A copy of the PHT Trust Agreement is on the Plan Documents page.
2. How do I provide written notice to the PHT Trustee of a dispute?
To file a dispute, please send a letter to the PHT Trustee explaining your issue and enclosing any documents that support your position. Disputes should be sent to the Trustee at the following address:
Magna Servicing, LLC
P.O. Box 23226
Waco, TX 76702
Please clearly state that you are providing written notice of a dispute so that Magna can forward your letter to the PHT Trustee.
1. Since the investor portal will not be available until July or August, how can I find out what my escrow balance is?
Future bills for premiums will include an escrow account reconciliation showing how much money is in escrow to pay current premiums and how much is available to apply to the bill for future premiums.
2. Why can’t I use all of the money I have in escrow for future premium bills? LPI always allowed me to do so.
Because the Plan requires a different method of billing than LPI used previously, the PHT must handle escrow balances differently than LPI had in the past. In the past, LPI had billed for premium payments as they were made. When a payment needed to be made, the LPI determined whether a position holder had sufficient money in escrow to pay its share of the payment. If so, LPI would use the escrowed money to pay the position holder's share of the premium and reduce the escrow balance. If there was not enough money on escrow, LPI would bill the holder for its share of the premiums.
The PHT, on the other hand, can only bill holders for policy premiums once a year. At that time, the PHT collects money from the holders to pay premiums for the following year. Although it is required to collect premiums annually, the PHT does not pay premiums to the insurance company just once a year. For most policies, the PHT pays premiums to the insurance company every three months. This is the standard practice in the life settlement industry, allowing more control over the payment of premiums and limiting the loss of value that occurs when an insured dies. If an insured dies right after a premium is paid, the insurance company keeps the premium. Paying premiums quarterly reduces these losses to no more than three months' worth of premiums.
Because the PHT is required to hold and use money paid by holders over the course of several months, not all of the money that is shown in a holder's escrow can be used to pay future premiums. For example, in December 2017, the PHT will bill annual premiums for policies with a May payment anniversary. This bill is for premiums to be paid in May 2018, August 2018, November 2018, and January 2019. All or some portion of the money in a holder's escrow account on December 2017 when the bill was sent is needed to pay the January 2018 premium payment and, thus, is not available to pay the December 2017 bill. The escrow balance an investor sees at any given time represents both (i) funds needed to pay premiums but not yet sent to the insurance company, and (ii) unencumbered funds that can be applied to the bill. The timeline linked herein may be helpful.
3. If I paid the December 2016 premium invoices but I had sufficient funds in escrow to cover the invoices, can I get my money back?
Yes. The PHT will refund payments made where the escrow balance was sufficient to pay the entire invoice. We will not make partial refunds (i.e., there was escrow money to cover only part of the amount due).
BILLING AND PREMIUMS
1. What is the new billing cycle?
On April 6, 2017, the Court modified the Plan of Reorganization to change the schedule for billing premium calls. The PHT Trustee is no longer limited to billing only in June or December. Instead, he has the flexibility to design a billing schedule that meets the needs of the PHT and the investors. However, he still must bill each policy only once per year.
The PHT Trustee's current plan is to divide the policies into twelve roughly equal groups and to bill a different group each month. In this manner, the premium payments required of Continuing Holders will be more evenly spread throughout the year easing the cash flow burden on the Holders and the administrative cost to the PHT.
As with the premium calls invoiced in December, the PHT will allow investors to use available escrow balances to pay future premiums.
2. Why were the premiums billed in the premium invoices I just received higher than I expected?
The premiums billed in the most recent premium calls were based on the most recent optimizations prepared by the Debtor immediately prior to the effective date or the most recent cost of insurance required by the insurance company to keep the policies in force. Premium increases are attributable to several factors, including:
• The premiums included in the most recent premium calls were premiums payable in 2016, 2017 and 2018 because they were based on each policy’s annual premium billing cycle. The billing schedule during the bankruptcy was based on the calendar year. Under the Plan, the PHT is required to bill by policy year and not calendar year.
• In some cases, cash value had been used to pay past premiums and higher premiums are now due to cover the insurance company’s net amount at risk (the difference between the cash value of the policy and the death benefit).
• The cost of insurance increases as the insured gets older. These are called “age increases”.
• You may hold a position in an annual renewable term policy. Annual renewable term premiums are paid every year on the basis of a one-year contract, which means that the premiums will rise over time as the insured person ages. Premiums on these types of policies are subject to large changes and are unpredictable.
• You may hold a position in one of the 600+ group policies. Group policy premiums are largely unpredictable because they are based on unpredictable circumstances including, that employers frequently change insurers, which results in changing premium obligations; the premium obligations and coverage may increase or decrease due to the insureds age and salary; and, the policy may be converted from a group policy to an individual policy which will increase the premium cost.
• Insurance companies have been increasing the cost of insurance rates for a number of policies. Although, special interest groups are fighting these cost increases, we are still required to pay the increased cost of insurance.
We should note that the premium information that was shown on LPI-Policies.com was not current as of the Effective Date and should no longer be relied upon.
3. But I thought that Magna Servicing was going to optimize premiums?
It is and that process is ongoing as outlined in the Plan.
Best practices in the industry, which the PHT has adopted, call for optimized premiums to be reviewed when an annual statement is obtained or to be re-optimized when a grace notice is received. In this manner, all policies are regularly reviewed and premiums paid at an appropriate level. Please understand, however, that premium optimization does not mean that premium payments will be always be reduced. In some cases, premium payments will go up.
4. Will the PHT send premium invoices on policies that have sufficient cash value to pay premiums for the period covered by the premium call?
No. If a policy has sufficient cash value to cover cost of insurance for the policy year, premium invoices will not be sent.
SALE OF POSITIONS
1. How do I sell my investment - my Continuing Fractional holder Certificate, my interest in the pool, my interest in the IRA Holders Partnership or my New IRA Note?
The Plan and its supporting documents – the Position Holder Trust Agreement, the IRA Holders Partnership Company Agreement, and the New IRA Note documents – provide very strict limits on the resale of the securities created by the Plan. These restrictions are required by federal securities and tax laws. In short, the investments held by the investors are securities and can transferred only in accordance with federal and state securities laws - just like the original LPI investments that the Texas Supreme Court held to be securities. In addition, the PHT’s and IRA Holders Partnership’s exemption from the requirements of the federal Investment Company Act depend in part on maintaining and enforcing strict limits on the transfer of securities. Similarly, the PHT’s tax status depends upon maintaining and enforcing these limits. As set forth in the Plan and its supporting documents, sales of interests will require an opinion of counsel from the buyer or seller that is acceptable to the PHT Trustee. Because of these requirements, you should consult with your attorney before you attempt to sell your investment and have your attorney contact the PHT Trustee before you attempt to sell your investment.
2. Will the PHT operate a sales platform similar to the one that LPI operated?
No. The Plan forbids the PHT from doing so.
3. Can the PHT provide any assistance in selling investments?
No. The Plan forbids the PHT from supporting any sort of trading activity.
1. I am an IRA holder and selected Option 4. How do I complete the transfer of my position to a Continuing Fractional Holder?
Per the Court order, you must instruct your IRA custodian to distribute from your IRA the positions for which you elected Option 4 by 5:00 p.m. Central Time on May 5, 2017. You must contact your IRA custodian. The PHT cannot instruct your custodian on your behalf. Your custodian will have the necessary forms.
Pursuant to its Order Granting Request to Modify Third Amended Plan, the Court has set a deadline of 5:00 p.m. Central Time on May 15, 2017, for the IRA custodians to notify the PHT of the distribution. Please note that the PHT must actually receive the custodian's notice of distribution by 5:00 p.m. Central Time on May 15, 2017.
2. What happens if I and my IRA custodian do not complete the distribution and provide notice to the PHT?
Failure to comply with the May 15, 2017 distribution deadline will void your IRA Option 4 election and you will be deemed to have made an IRA Option 2 (Pool) election.
3. What if I provided notice to my IRA custodian by May 5, 2017 as required, but the custodian does not process my distribution on time?
The PHT Trustee has been granted the discretion to extend the May 15, 2017 distribution deadline for individual investors, but only if the investor requested distribution by May 5, 2017.
4. What documents should I send to the Trustee or his counsel regarding distributions from my IRA?
You do not need to send any documents to the Trustee or his counsel. When your IRA custodian completes the distribution of your investment from your IRA to you, the IRA custodian will send notice to Magna Servicing and to the Trustee's counsel. Sending copies of these documents yourself is not necessary.
5. Can I hold a Continuing Fractional Interest in my IRA?
No. The Plan does not allow Continuing Fractional Interests to be held in IRAs. Section 3.07(d)(iii)(4) of the Plan provides that an Option 4 election is an election to "Distribute the IRA Note to the individual tax payer who owns the IRA and exchange it for a Fractional Interest registered in the name of the individual taxpayer, with respect to which the individual will be deemed to have made a Continuing Holder Election."
Moreover, a Continuing Fractional Interest is an investment in life insurance. The PHT has taken the position that the Internal Revenue Code and tax regulations do not permit IRA funds to be invested in life insurance. In that regard, the PHT Trustee notes that the IRS posted a FAQ on its website confirming that IRAs may not invest in life insurance. A copy is available here.
Accordingly, the PHT Trustee, as the registrar of these securities, will not recognize any attempt to contribute a Continuing Fractional interest to an IRA.
1. Why did I receive a 1099-MISC for my pre-effective maturity?
Per the Plan, the distributions that you received in 2016 are bankruptcy distributions. Accordingly, you received a 1099-MISC, in lieu of the 1099-R that you might have otherwise received. The 1099-MISC reports the payment amount remitted to you; it does not report your “taxable income.” Your bankruptcy claim associated with this distribution arose out of your matured positions. Your basis associated with the corresponding matured position(s) may be applied to reduce your taxable income. You should speak to your tax advisor about your distribution, your basis in that distribution, the 1099-MISC, and your associated tax obligations.
2. But I thought death benefits were not taxable?
Though the general rule is that life insurance proceeds paid to a beneficiary due to the death of the insured are not includable in gross income; that is not the case for life settlements. See Rev. Rul. 2009-14. If you purchased your interest in the policy (i.e., paid cash or other valuable consideration), then the proceeds’ exclusion from gross income is limited to the sum of: (i) the consideration you paid, (ii) additional premiums you paid, and (iii) certain other amounts. There are some exceptions to this rule. Generally, you report the taxable amount based on the type of income document you receive, such as a Form 1099-INT, a Form 1099-R or a 1099-MISC. For additional information, See IRS Publication 525, Taxable and Nontaxable Income. Moreover, any interest you receive is taxable and you should report it as interest received. See Topic 403 for more information about interest.
3. What is my basis in my matured position(s)?
Unfortunately, the PHT is not in a position to advise you regarding your basis. In addition to the amount that you paid to Life Partners to acquire your position and fulfill your premium obligations; you may have capitalized additional allowable expenses such as attorney’s fees, advisor fees, and ancillary investment expenses. Moreover, the exchange of your bankruptcy claims for the securities issued under the Plan in December 2016 was a taxable event on which you may have had a tax gain or loss. Those who elected IRA Option 4 and distributed positions in order to convert then to Continuing Fractional Holder Certificates may have revalued the positions in order to minimize the tax consequences of the distribution. All of these facts affect the basis in your positions and your ultimate taxable gain when the position matures.
If you re-valued your position and took a distribution from your IRA, the PHT has no records indicating your basis on that distribution from your IRA. If you took a tax loss or otherwise depreciated the position(s), the PHT has no information as to those adjustments either. In short, your current basis is unique to you, your personal facts and circumstances, and your prior tax positions. You (and your advisors) should review your financial and tax records to determine your current basis.
You can also look at Schedule F filed in the bankruptcy for an estimate of the costs incurred on each position as of LPI’s petition date. In Schedule F, the Bankruptcy Trustee attempted to calculate the amount paid (purchase price plus premiums) on each position as of May 19, 2015, the date that LPI filed for bankruptcy. You should, however, pay particular attention to the introductory notes to Schedule F which indicate that the Bankruptcy Trustee estimated many of the amounts shown on the Schedule. You can obtain a copy of Schedule F on Epiq’s website for the LPI case (http://dm.epiq11.com/#/case/lifepartners/info)
4. I am a tax advisor. Where can I find information regarding the Plan?
We have posted copies of the Plan, the Disclosure Statement, the Confirmation Order and other documents related to the Plan. If you need additional plan documents, please contact the Trustee.
1. I am a Continuing Fractional Holder. When can I expect to receive my share of the death benefits after a policy that I invested in matures?
If you are a Continuing Fractional Holder in a policy that matured after November 11, 2016, the PHT will begin making payments on matured policies in June. The PHT has received payment from the insurers on 23 of the 37 policies that have matured. The Trust will process one policy at a time in the order in which payments from the insurer were received. This is not the same order in which the policies matured.
After we work through the initial backlog of maturities, we anticipate that we will be able to make distributions within 45 days of the Trust's receipt of payment from the insurance companies. Generally, insurance companies pay about 90 days after the date of death. The time can be shorter or it can be much longer, and it depends on many factors. As an example, there may be a delay in obtaining the death certificate. Some states and foreign countries impose limits on who can obtain a copy of a death certificate which can slow down the process. In addition, the insurer can take time to investigate the claim and may ultimately dispute it. Neither the PHT nor Magna control how long it takes to receive payment from the insurance companies.
2. I own units either in the PHT or in the IRA Partnership. When can I expect to receive a payment?
The PHT can make distributions to the PHT unit holders and to the IRA Partnership (for distribution to its members) only if two conditions are met: (i) the PHT has paid off the $55 million Exit Loan and (ii) there is excess cash available after the PHT Trustee has reserved sufficient funds to pay the premiums owed by the PHT on its interests in policies; to pay the premiums owed by defaulting Continuing Fractional Holders; to fund its ongoing operations and to pay for any unanticipated contingencies.
The PHT Trustee anticipates that the PHT will pay off the Exit Facility this year and that there will be sufficient funds available for a distribution near the end of 2017.
3. I have an New IRA Note. When will I get paid?
The New IRA Notes have a 15-year term. This means that the principal balance of the note will be due in full by December 2031. The PHT can pay some or all of the principal sooner, however. It is too soon to determine whether the PHT can or even should do so. In the meantime, the PHT will pay annual interest of 3% on the outstanding principal in November of each year. Thus, noteholders should expect an interest payment in November 2017.