All assets in the separate account must be considered to be owned by the insurance carrier, not by the proposed policyholder. In order to meet this requirement, the proposed policyholder may not have direct or indirect control over the specific investment decisions made by the investment manager with respect to the assets in the separate account, or be treated as possessing any “incidents of ownership.” If the proposed policyholder retains or exercises prohibited control, the proposed policyholder may be treated as the owner of the underlying assets held in the separate account, and income, accretions and gain recognitions within the separate account may become currently includable in the proposed policyholder’s taxable U.S. gross income.
In order to minimize the potential U.S. federal income tax exposure to each proposed policyholder with respect to the investor control rules, the insurance carrier will, in general, contractually prohibit each proposed policyholder from directly or indirectly consulting with the investment manager(s) managing the assets in the separate account backing their respective policy following the policy’s issuance.
All investment decisions will generally be made exclusively by the applicable investment manager(s) in their sole and absolute discretion, but subject to the investment option selected by the proposed policyholder. The insurance carrier assumes no responsibility for the consequences of any proposed policyholder or investment manager violating any representations and warranties given or agreements made in this regard, and the proposed policyholder should contact their own independent tax adviser for guidance in this regard to the extent an expansion of the general investment rights is desired.