Learn about New IRA Notes

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 amount you invested. So if you invested $100,000 you got a NIRAN for $32,000. All of these notes had a 15-year term (meaning they were not set to pay off until December 2031) and earned interest of 3% per year. Interest was 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. The Trust has been in existence a little over 3 years and the Trust has paid 4 years of principal (2/15ths plus 2/15ths) 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 $7,500 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.