There are four different types of investment positions within the Trust. Two were designed to be held outside of your IRA and two were designed to held within your IRA. Each of those are discussed below. Many investors own more than one type of investment position.
CFH is short for Continuing Fractional Holder. It means you invested in a portion of a policy before the bankruptcy and elected to continue holding your interest in the policy after the bankruptcy. Since you decided to continue holding your interest, it also means you must continue to pay your share of the premiums associated with that policy. The bad news is you must continue paying premiums to protect your interest.
As a CFH you are billed annually by NorthStar Client Services for your share of the premiums. You are given 60 days to submit your payment and a reminder is sent after 30 days if you have not yet paid. If you don’t pay within the 60-day period, you are subject to being defaulted. In other words if you don’t pay your premium by the due date, then you lose your interest in the policy and instead get PHT units in the Trust.
If a policy in which you own an interest matures (the person dies), once the proceeds are received from the insurance company, you will be paid your share of the death proceeds on or about the 15th day of the month following the Trustee’s receipt of the funds along with any excess escrow balance or unused premiums funds you paid. Any lien you owe is deducted from the amount you are paid.
The chart below shows the total number of CFH positions and the number of investors holding them.
If as part of bankruptcy, you chose not to continue paying premiums for the policy in which you had invested and, you did not hold your investment in an IRA account, then you received units (think of them as shares of stock) in the Trust. Even if you did decide to continue paying premiums and became a CFH (Continuing Fractional Holder) you received units equal to 5% of the face amount of your investment. So everyone who did not hold their investment in an IRA account was issued PHT units. Holders of units will receive periodic payments from the Trust under what we call a general distribution. The Trust made its first general distribution on November 11, 2019 and continues to make general distributions as excess funds are available. The details of each distribution can be found on our Distributions page.
Because each distribution costs money as to each check issued, if you were calculated to receive less than $10 then no check was sent to you. However, that amount will accrue and will be paid in the next distribution if the total exceeds $10. You didn’t lose the money, its payment is just deferred until the amount is worth the check and mailing costs. The out of pocket cost to the Trust to make a general distribution to unit holders is approximately $15,000 each time a distribution is made.
The Trust expects, but cannot promise, that at least yearly general distributions will be made when the Trust has sufficient excess funds to allow it to do so. The Trustee is committed to getting you the most money it can as soon as it can after payment of premiums, operating costs and adequate reserves. However, the ability to make distributions is entirely dependent upon the rate at which people die and the insurance companies pay the death benefits to the Trust.
The total number of units in the Trust fluctuates each year due to a number of things such as CFHs deciding to no longer pay premiums and defaulting into the pool or people abandoning units. If someone defaults into the pool, they receive units generally equal to 80% of the face amount of their investment, not 100%, so as people default the number of units does go up. If people abandon their units, the number of units goes down.
The chart below shows the total number of PHT units and the number of investors holding them.
NIRAN is an acronym for “New IRA Note.” Under the bankruptcy plan, investors who held their investment in a particular life insurance policy through their IRA were given the option to replace their investment with a secured note so that the investment would not violate IRS regulations, which prohibit owning an investment in a life insurance policy through an IRA.
You can own a note in an IRA but not an interest in an insurance policy. If you chose to take the note, the amount of the note was equal to 32% of the face amount of your investment. So if the face amount of your investment was $100,000 you got a NIRAN for $32,000. All of these notes have a 15-year term (meaning they were not set to pay off until December 2031) and earn interest of 3% per year. Interest is required to be paid by the Trust each year on December 15. A paper original of the note was prepared and given to your IRA Custodian to hold.
In order to make sure the notes were paid when the time came in 2031, they were secured with collateral consisting of interests in various policies. As those policies matured and the death benefits were paid to the Trust by the insurance company, the portion of those proceeds which was collateral for the notes was paid into a sinking fund (savings account). At the time the NIRANs were originally put into place the total face amount of the notes was approximately $35 million. So the thought was that over time the proceeds placed into the sinking fund would grow to about $35 million so the notes could be paid in full by the Trust in 2031. When Mr. Quilling was appointed as Trustee in late 2018, he did not see any reason why the investors who owned a NIRAN should wait until 2031 to begin receiving payments of principal when some of that money was sitting in the sinking fund. Under the terms of the NIRANs, partial payments of principal could be prepaid at any time so that was what was done. On August 1, 2019, the Trust paid each NIRAN investor an amount equal to two years of principal under the note (2/15ths of the total amount) plus interest through that date. On December 15, 2019, the Trust paid an additional two years of principal owed under the notes plus interest from August 1 to December 15. On December 15, 2020, the Trust paid an additional one year of principal owed under the notes plus accrued interest. The Trust has been in existence a little over 4 years and the Trust has paid 5 years of principal (2/15ths plus 2/15ths plus 1/15th) so the payment of these notes is being expedited. All the money to do this has come out of the sinking fund established for this purpose and not from general funds of the Trust. The HOPE but no PROMISE is that the Trust will continue to pay principal each year, so the notes are paid off early.
Another thing the Trustee did was ask the Bankruptcy Court for permission to do away with paper notes; in September 2019, that request was granted so there are no more paper notes. Everything is done and tracked electronically. Before this was done there was a requirement that if a prepayment was made, a new paper note had to be issued. This made no sense and cost the Trust to do so. Think of it this way: When you make a payment on your mortgage or car, you do not issue/sign new paperwork each time a payment is made and now neither does the Trust. This saves money for the Trust.
Finally, as funds are available in the sinking fund, the Trust has paid in full the NIRANs which had a face value of $19,500 or less. Reducing the number of notes saves paperwork and accounting fees which saves the Trust money. All of the things done by the Trustee are designed to simplify things, expedite payment, and save the Trust money which will increase the amount of money available to pay distributions to unit holders and partnership interest holders. All money used to make payments under the notes comes out of the sinking fund and no where else.
The chart below shows the total number of NIRANs, the number of investors who hold them and the total face amount of the notes.
If you own IRA Partnership Interests you should think of them as PHT units except that you hold them in your IRA account. In essence, the partnership interests are just like units. Under the Bankruptcy Plan, the court established the Life Partners IRA Partnership at the same time the Trust was established. The Trustee is also the Manager of the Partnership and runs its affairs. The Partnership owns a very large number of units (737,227,275 as of April 1, 2021) in the Trust. In turn, you are a limited partner in the Partnership and hold interests in it instead of actual units. All of this was set up to comply with IRS regulations regarding what you could or couldn’t own in an IRA account. Under those rules you cannot own units in your IRA but you can own partnership interests. Whenever the Trust makes a distribution to holders of units that includes a distribution to the Partnership which holds the units. In turn, the Partnership distributes that money to you because you own interests in the Partnership.
The chart below shows the total number of IRAPs and the number of investors holding them.