The first question in a Nevada file is usually not “should the client sell the policy” but “which state’s settlement law applies to this client.” Nevada practices are full of people who moved from California in 2019, still winter in Arizona, hold a policy issued in Illinois, and have an estate plan drafted in a Nevada trust. The transaction is state-regulated, the applicable state is generally where the policy owner resides at the time of the transaction, and getting that wrong stalls a closing at the worst possible moment.
Nevada regulates the transaction under NRS Chapter 688C, administered by the Nevada Division of Insurance within the Department of Business and Industry. That chapter, not a federal statute, is what licenses the buyer, gives your client a rescission window, and defines the broker’s duty to the seller. It is also the answer to the question every client asks first, which is whether any of this is legitimate.
The economics are why the conversation happens at all. A lapsed policy returns nothing. A surrendered policy returns whatever cash value survived decades of mortality charges. Federal research on the secondary market (GAO-10-775) found policyholders who sold typically received roughly 10% to 35% of face value and, on average, several multiples of cash surrender value. Not every policy qualifies. The point of this guide is to help a Nevada practitioner tell the difference and to know exactly where the boundary of their own license sits.
In This Article
- Residency, Situs, and Which State’s Law Governs
- NRS 688C and the Nevada Division of Insurance
- No State Income Tax Changes the Net, Not the Character
- Finding the Policy in the File
- Nevada Medicaid: DHCFP Limits and the Income Cap
- Pricing the Exits
- Referral Boundaries and the Nevada State Board of Accountancy
- Frequently Asked Questions
Residency, Situs, and Which State’s Law Governs
Three separate situs questions can appear in the same Nevada engagement, and they do not have the same answer.
Which state’s settlement law applies. Generally the residence of the policy owner at the time of the transaction, not the state where the policy was issued and not the state where the carrier is domiciled. A client who genuinely relocated to Nevada is a Nevada transaction under NRS 688C; a client who spends five months a year here and files as a resident elsewhere is not. Resolve residency before starting, not at closing. See how settlement rules follow a move and the two-state residency problem.
Who owns the policy. Nevada is a community property state. A policy acquired during the marriage with community earnings is generally community property regardless of whose name appears as owner, and a licensed buyer’s closing package will expect both spouses to participate. Where a client moved to Nevada from a common law state, the characterization of property acquired before the move is a legal question for counsel rather than an accounting one.
Where the trust sits. Nevada is a favored trust situs, and it is common for an out-of-state settlor to hold a policy in a Nevada trust. In that case the seller is the trustee, not the insured, and the trustee’s authority to sell, along with any beneficiary consent requirement, comes from the trust instrument. Coordinate with the trustee before the client assumes they can act.
None of these are obstacles. They are intake questions, and asking them first is what keeps a transaction from stalling three weeks in.
NRS 688C and the Nevada Division of Insurance
Nevada’s viatical settlement provisions are codified at NRS Chapter 688C, administered by the Nevada Division of Insurance, which sits within the Department of Business and Industry and is led by the Commissioner of Insurance. Knowing the chapter number is genuinely useful: a client contacted by an unfamiliar buyer can be told exactly which statute governs and which agency to call.
What the chapter provides, in practical terms. Providers and brokers must be licensed in Nevada, and status is verifiable through the Division. A rescission period follows execution of the settlement contract, so the client’s decision is reversible within a defined window. Disclosure obligations attach to the parties buying the policy. And a broker’s duty runs to the policy owner while a provider is the buyer with its own return requirement, which is the cleanest explanation of why one party should not hold both roles.
Two absolutes to hand clients before they take any call: no legitimate transaction requires the policy owner to pay a fee in advance, and no genuine institutional offer expires in 48 hours. Either is grounds for a call to the Division’s consumer services function. Verification steps are covered in Nevada settlement licensing.
No State Income Tax Changes the Net, Not the Character
Nevada imposes no individual income tax, a position embedded in the state constitution, and there is no Nevada estate tax or inheritance tax. That is a real advantage for a client realizing a large gain, and it is also the most common source of sloppy analysis in this area.
What it does not change is the federal character of the proceeds. Under Revenue Ruling 2009-13, amounts received up to adjusted basis are a tax-free return of capital, gain from basis up to cash surrender value is ordinary income, and gain above cash surrender value is generally long-term capital gain. That ordering matters because ordinary income and long-term capital gain are taxed at different federal rates and the split can be substantial on an old, heavily funded contract.
What it also does not change is where the client actually pays. A client who sells a policy in the year they moved, or who remains a resident of California or Oregon for income tax purposes while spending time in Nevada, faces a state tax result determined by that other state’s residency and sourcing rules, not by Nevada’s absence of a tax. Establish residency for the year of sale before projecting a net number. See how state income tax applies to settlement proceeds.
One more federal point that gets missed: TCJA section 13521 eliminated the cost-of-insurance reduction to basis that Revenue Ruling 2009-13 had originally required, retroactive to transactions after August 25, 2009. Basis is therefore generally cumulative premiums paid, reduced by nontaxable distributions and outstanding loans. Worksheets that still subtract mortality charges understate basis and overstate the client’s gain.
| Intake Question | Why It Matters | Where the Answer Comes From | Consequence of Getting It Wrong |
|---|---|---|---|
| Where does the owner reside? | Determines which state’s settlement law governs | Tax residency, driver’s license, domicile facts | Wrong licensing regime; closing stalls |
| Is the policy community property? | Nevada community property may require both spouses | Marriage date, funding source, prior state of residence | Missing signature discovered at closing |
| Who is the legal owner? | A trustee, not the insured, may be the seller | Policy cover page and the trust instrument | Transaction signed by a party without authority |
| Is there a conversion deadline? | Term policies past the window usually have no value | Rider schedule and written carrier confirmation | Irreversible loss of the asset’s only value |
| What is net cash surrender value? | The benchmark every offer must beat | Most recent annual statement | Accepting an offer worse than surrender |
Finding the Policy in the File
The asset rarely announces itself. Three signals do.
A premium that repriced. Universal life and guaranteed universal life contracts issued in the 1990s and 2000s are now in the steep part of the mortality curve. A client reporting that the insurer “wants more money” is describing a cost-of-insurance increase that will recur.
A Form 1099-R nobody expected. Usually a surrender, a policy loan that went taxable, or a contract that terminated with a gain. It is also the opening to ask what other policies the client still holds.
A conversion deadline. Term conversion rights typically expire at a stated policy year or attained age, often 65 or 70, years before the term itself runs out. Once the window closes the contract generally has no market value at all, which makes this the most time-sensitive item you can catch.
Then request five documents in one email: the cover page, the most recent annual statement, an in-force illustration run at current charges, the rider schedule, and the carrier’s cost basis statement. The in-force illustration is the one clients never have and the only one that produces a specific date on which the policy fails.
Nevada Medicaid: DHCFP Limits and the Income Cap
Nevada Medicaid is administered by the Division of Health Care Financing and Policy within the Nevada Department of Health and Human Services. Long-term care eligibility turns on figures that should be confirmed with the Division rather than assumed, but the structure is stable.
Resources. $2,000 countable for an individual applicant. The community spouse resource allowance follows the federal minimum and maximum, $31,584 and $157,920 for 2025, indexed annually.
Income. Nevada applies the special income limit for institutional eligibility, set at 300% of the SSI federal benefit rate, which was $2,901 per month in 2025 and adjusts each January with the Social Security cost-of-living increase. Applicants above the cap generally require a qualified income trust, established and funded before the application rather than retroactively.
Life insurance. Where the aggregate face value of all policies on the insured exceeds $1,500, the entire cash surrender value counts as a resource; at or below that aggregate, cash value is excluded. The test aggregates, which is the detail families miss when they own three small policies.
Sequencing decides these cases. Proceeds are countable cash in the month after receipt, so a sale does not create eligibility. It creates a private-pay runway and a documented arm’s-length price, and that documentation matters because a below-market sale can be recharacterized as an uncompensated transfer and trigger a penalty period under the 60-month look-back. For a client who genuinely moved to Nevada, note also that Medicaid eligibility does not travel across state lines; a new application in the new state of residence is required, and the resource picture is evaluated fresh.
Pricing the Exits
Keep and fund. Priced by the carrier’s minimum premium to carry the policy to maturity at current charges. Where a survivor, a disabled dependent, or a business obligation still needs the death benefit and the number is affordable, the analysis ends here and you write down why.
Reduced paid-up. Priced by asking the carrier what fully paid death benefit the current cash value supports with no further premiums. On most whole life contracts this is a contractual right and it resolves a large share of affordability problems without any transaction at all.
Extended term. Full face amount for a defined period, no further premium. Occasionally the best answer for an insured in poor health.
Surrender. Priced as net cash surrender value after loans and surrender charges. This is the benchmark any settlement offer must beat.
Accelerated death benefit. If the rider is in force and the insured meets the terminal or chronic illness definition, this delivers cash from the carrier with no third party and, under IRC section 101(g), generally outside gross income. Free to exercise, so check it first.
Life settlement. Priced by a free eligibility review, then by competing offers if the policy qualifies. A single unshopped offer is not a market price and should not be treated as one.
Be direct about the wrong cases. Small final-expense and burial policies generally have no secondary market at any age or health status. An insured in strong health draws low offers because the projected holding period is long. A beneficiary who still needs the coverage ends the conversation. Coordinate product-level decisions with the client’s financial advisor rather than substituting for one.
Referral Boundaries and the Nevada State Board of Accountancy
The Nevada State Board of Accountancy licenses CPAs in the state and enforces its practice and continuing education standards. Separately, the AICPA Code of Professional Conduct prohibits a member who performs attest services for a client from accepting a commission or referral fee from that client, and requires disclosure where a commission may be accepted. If you also hold a Nevada producer license or an investment adviser registration, evaluate each rule set on its own terms rather than assuming the most permissive one governs.
The workflow that eliminates the conflict: identify the policy, request the five documents, check the free options first, send the cover page for a free eligibility review to establish whether a market exists, accept no compensation for the referral, and bill your own time for the basis reconstruction, the residency and sourcing analysis, and the coordination with trustee or counsel. Pine Lake does not pay referral fees to CPAs.
On reporting: a closed settlement generates Form 1099-LS from the acquirer and Form 1099-SB from the issuing carrier under IRC section 6050Y, enacted in 2017 and implemented by final regulations in 2019. Where the insured is terminally ill within IRC section 101(g)(4), physician-certified with a life expectancy of 24 months or less, or chronically ill within the statutory definition, a sale to a licensed viatical settlement provider is generally excluded from gross income and reported on Form 8853; the certification must exist before closing.
Expect preliminary eligibility feedback within days of sending a cover page and a full transaction in roughly 60 to 120 days, driven by medical record retrieval and life expectancy underwriting. To find out whether a client’s policy is a candidate, send the policy cover page for a free, no-obligation review or call (305) 209-7183. Pine Lake Life Solutions provides education and policy reviews only and does not provide legal, tax, or investment advice.
Frequently Asked Questions
Which state’s law applies if my client moved to Nevada last year?
Generally the law of the state where the policy owner resides at the time of the transaction, not the state of issue or the carrier’s domicile. A genuine Nevada resident is a Nevada transaction under NRS Chapter 688C. Resolve residency at intake, because a mid-process discovery that the client is still domiciled elsewhere restarts the licensing analysis.
Does Nevada’s lack of an income tax mean the proceeds are tax-free?
No. Federal character still applies: under Revenue Ruling 2009-13, recovery of basis is tax-free, gain from basis to cash surrender value is ordinary income, and gain above cash surrender value is generally long-term capital gain. Nevada simply adds no state layer. A client who is still a resident of another state for tax purposes will face that state’s rules.
Does Nevada community property law require a spouse to sign?
In practice, yes for a community-classified policy. A policy acquired during the marriage with community earnings is generally community property regardless of the named owner, and a licensed buyer’s closing package will expect both spouses to participate. Property acquired before a move from a common law state raises a characterization question for counsel.
The policy is owned by a Nevada trust with an out-of-state settlor. Who sells it?
The trustee, acting under the authority granted in the trust instrument. The insured’s willingness is not the same as the trustee’s authority, and some instruments require beneficiary notice or consent. Establish the trustee’s power to sell and any consent requirements before starting, and involve the trustee’s counsel where the instrument is ambiguous.
What are the Nevada Medicaid limits that affect a policy?
A $2,000 countable resource limit for an individual applicant, a special income limit of 300% of the SSI federal benefit rate for institutional eligibility ($2,901 per month in 2025, adjusted each January), and the rule that cash surrender value counts in full once the aggregate face value of all policies on the insured exceeds $1,500. Confirm current figures with the Division of Health Care Financing and Policy.
May I accept a referral fee from a settlement broker?
Not from an attest client. The AICPA Code of Professional Conduct prohibits commissions and referral fees from attest clients and requires disclosure where a commission may be accepted, and the Nevada State Board of Accountancy enforces the state counterpart. Referring without compensation and billing your own analysis time avoids the issue. Pine Lake does not pay CPA referral fees.
How quickly can a client find out whether the policy has value?
Preliminary eligibility feedback from a policy cover page typically comes back within days at no cost. A full transaction, including medical record retrieval, life expectancy underwriting, competing offers, and an escrowed closing, generally runs 60 to 120 days. If a grace period or conversion deadline falls inside that window, pursue a faster alternative.
Find out what your policy is worth — free, confidential, no obligation.
A 15-minute educational review covers your eligibility, every alternative, and a realistic view of what each path would net you.
Related Reading
- Nevada Medicaid Asset Income Limits
- Life Settlement Licensing Nevada
- Life Settlement Taxes Nevada
- Nevada Insurance Department Consumer Help
- Trust Officer Life Settlement Guide Nevada
- Financial Advisor Life Settlement Guide Nevada
- Moving States Life Settlement Rules
- State Income Tax On Settlement
- Snowbird Two State Residency Policy
Pine Lake Life Solutions does not purchase life insurance policies and does not provide legal, tax, or investment advice. Information provided is for educational purposes only. Eligibility for any option, including life settlements, is not guaranteed and depends on individual circumstances, policy terms, underwriting, and market conditions. Consult independent legal, tax, or financial professionals before making decisions regarding a life insurance policy.