FEDweek

When Assigning FEGLI Could Be Wise

You may assign your Federal Employees Group Life Insurance to one or more persons, firms or trusts. Assignment means that you agree to give up ownership of your Basic, Standard Optional (“Option A”) and Additional Optional (“Option B”) life insurance coverage forever. The assignee becomes the beneficiary but you must continue to pay any applicable premiums.

There are three main reasons you might want to consider assigning your FEGLI insurance:

To Comply with a Court Order–You may make an assignment of your group life insurance in order to comply with a court order for divorce. Assigning life insurance coverage to a former spouse provides a means to assure the court that life insurance benefits will be payable to a former spouse or his or her designated beneficiary. Otherwise, under the life insurance law, an insured person may change his or her designation of beneficiary at any time.

For Inheritance Tax Purposes–Generally, if an assignment is made at least three years before an individual’s death, the insurance is considered a gift to the assignee, rather than a part of the estate of the insured. Current federal estate tax law allows an unlimited marital deduction for that portion of the gross estate passed to a surviving spouse. Thus, there is no apparent immediate tax advantage to assigning ownership of a life insurance policy to a spouse. However, since state tax laws vary and tax ¬savings under federal or state law can be considerable if insurance proceeds are not subject to estate taxes, it is important to consult a competent estate tax advisor. A determination as to whether the life insurance proceeds are included in your gross estate must ultimately be made by the IRS at the time of your death. In attempting to determine the tax effect of an assignment, you should refer to tax laws, case law and IRS regulations. In addition, you should consider obtaining a ruling from the IRS.

To Obtain Accelerated Death Benefits–You can assign your life insurance to a viatical settlement firm if you are terminally ill in order to obtain a portion of the value of your life insurance before your death. Consider first whether you could accomplish the same goal by electing a Living Benefit, however. In a Living Benefit, you can elect to receive a lump-sum payment if you have a documented medical prognosis that you are not expected to live more than nine months.

A few points to note:

By assigning your life insurance, you give up the right to designate beneficiaries and to reduce the amount of insurance coverage (even if the cost is more than you can afford).

Family Optional (“Option C”) life insurance cannot be assigned, because, by law, only you can be the beneficiary.

If you assign your life insurance to more than one person, you must specify the percentage shares for each person. You are not permitted to name contingent assignees in the event the primary assignee predeceases you.

An assignment cancels any designation of beneficiary you have made. If the assignee does not designate a beneficiary, the assignee is the beneficiary and will be paid after your death. After the assignment, only the assignee(s) may designate beneficiaries. Each assignee may designate anyone, including himself, or herself, as the beneficiary of the portion of your life insurance the assignee owns. An assignee may designate a contingent beneficiary and may change the designation of beneficiary at any time. Each assignee and each beneficiary of an assignee is responsible for keeping OPM advised of his or her current address.

An assignee may reassign his or her portion of the insurance coverage to individuals, firms or trusts. The assignee assumes all rights to cancel your life insurance. If there are two or more assignees, all of them must agree to any cancellation of your coverage.

You retain the right to elect the reduction schedule for your Basic life insurance. The assignee has the right to change your election to the maximum (75 percent) reduction schedule. If there is more than one assignee, all of them must agree to change the election.

The assignment form (RI 76-10) is available through personnel offices for active employees. Retirees should contact the Office of Personnel Management, Retirement Operations Center, Attention RI 76-10, Boyers, PA 16017-0045.