Document and Entity Information
Document and Entity Information | 12 Months Ended |
Dec. 31, 2018USD ($)shares | |
Document and Entity Information [Abstract] | |
Entity Registrant Name | Life Partners Position Holder Trust |
Entity Central Index Key | 0001692144 |
Current Fiscal Year End Date | --12-31 |
Entity Well-known Seasoned Issuer | No |
Entity Voluntary Filers | No |
Entity Current Reporting Status | Yes |
Entity Filer Category | Non-accelerated Filer |
Entity Emerging Growth Company | false |
Entity Small Business | true |
Entity Shell Company | false |
Entity Public Float | $ | $ 0 |
Entity Common Stock, Shares Outstanding | shares | 0 |
Document Fiscal Year Focus | 2018 |
Document Fiscal Period Focus | FY |
Document Type | 10-K |
Amendment Flag | false |
Document Period End Date | Dec. 31, 2018 |
BALANCE SHEET
BALANCE SHEET - USD ($) | Dec. 31, 2018 | Dec. 31, 2017 |
Assets | ||
Cash | $ 672,138 | $ 1,800,047 |
Maturities receivable | 24,111,204 | 19,438,534 |
Prepaids and other assets | 481,575 | 81,703 |
Restricted cash and cash equivalents | 51,221,993 | 76,304,593 |
Life insurance policies | 186,251,760 | 272,140,787 |
Total assets | 262,738,670 | 369,765,664 |
Liabilities | ||
Notes Payable | 42,568,117 | 74,086,192 |
Assumed tax liability | 1,957,240 | 2,243,302 |
Premium liability | 33,189,624 | 30,225,729 |
Maturity liabilities | 14,253,643 | 23,643,936 |
Accounts payable | 643,472 | 34,507 |
Assumed liabilities | 0 | 18,293 |
Accrued expenses | 1,119,978 | 572,317 |
Commitments and contingencies (Note 2) | ||
Total liabilities | 93,732,074 | 130,824,276 |
Net assets | 169,006,596 | 238,941,388 |
Life Partners IRA Holder Partnership, Llc [Member] | ||
Assets | ||
Investment in Life Partners Position Holder Trust | 102,164,149 | 150,752,520 |
Total assets | 102,164,149 | 150,752,520 |
Liabilities | ||
Due to the Life Partners Position Holder Trust | 160,691 | 35,526 |
Total liabilities | 160,691 | 35,526 |
Net assets | $ 102,003,458 | $ 150,716,994 |
STATEMENT OF OPERATIONS
STATEMENT OF OPERATIONS - USD ($) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Income | ||
Change in fair value of life insurance policies | $ (62,215,770) | $ 49,930,097 |
Other income | 1,358,807 | 672,712 |
Total income | (60,856,963) | 50,602,809 |
Expenses | ||
Interest expense | 3,278,635 | 7,083,398 |
Legal Fees | 2,037,630 | 3,649,790 |
Administrative and filing fees | 988,026 | 177,716 |
Insurance | 156,454 | 105,100 |
Professional fees | 2,794,667 | 3,744,007 |
Other general and administrative | 418,279 | 650,964 |
Total expenses | 9,673,691 | 15,410,975 |
Net (decrease) increase in net assets resulting from operations | (70,530,654) | 35,191,834 |
Life Partners IRA Holder Partnership, Llc [Member] | ||
Income | ||
Equity (loss) income from Life Partners Position Holder Trust | (48,588,366) | 11,300,869 |
Total income | (48,588,366) | 11,300,869 |
Expenses | ||
Professional fees | 125,170 | 35,526 |
Total expenses | 125,170 | 35,526 |
Net (decrease) increase in net assets resulting from operations | $ (48,713,536) | $ 11,265,343 |
STATEMENT OF CHANGES IN NET ASS
STATEMENT OF CHANGES IN NET ASSETS - USD ($) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Increase (Decrease) in Stockholders' Equity | ||
Net assets, beginning of period | $ 238,941,388 | $ 203,749,554 |
Conversion of debt to units (Note 5) | 595,862 | 0 |
Net (decrease) increase in net assets resulting from operations | (70,530,654) | 35,191,834 |
Net assets, end of period | 169,006,596 | 238,941,388 |
Life Partners IRA Holder Partnership, Llc [Member] | ||
Increase (Decrease) in Stockholders' Equity | ||
Net assets, beginning of period | 150,716,994 | 139,451,651 |
Net (decrease) increase in net assets resulting from operations | (48,713,536) | 11,265,343 |
Net assets, end of period | $ 102,003,458 | $ 150,716,994 |
STATEMENT OF CASH FLOWS
STATEMENT OF CASH FLOWS - USD ($) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Cash flows from operating activities: | ||
Net (decrease) increase in net assets resulting from operations | $ (70,530,654) | $ 35,191,834 |
Adjustments to reconcile net increase in net assets to net cash used in operations: | ||
Change in fair value of life insurance policies | 62,215,770 | (49,930,097) |
Change in assets and liabilities: | ||
Premiums receivable, net | 0 | 661,878 |
Prepaids and other assets | (399,872) | 83,164 |
Assumed tax liability | (286,062) | (1,858,797) |
Creditor trust funding | 0 | (10,000,000) |
Premium liability | 2,963,895 | 4,449,466 |
Maturity liabilities | (9,390,293) | (14,382,140) |
Accounts payable | 608,965 | (165,565) |
Assumed liabilities | (18,293) | (5,723,629) |
Accrued expenses | 625,448 | 54,848 |
Net cash flows used in operating activities | (14,211,096) | (41,619,038) |
Cash flows from investing activities: | ||
Premiums paid on life settlements | (56,655,499) | (37,545,076) |
Net proceeds from maturity of life settlements | 75,656,086 | 66,861,312 |
Net cash flows provided by investing activities | 19,000,587 | 29,316,236 |
Cash flows from financing activities: | ||
Payments on notes payable | (31,000,000) | (19,924,479) |
Net cash flows used in financing activities | (31,000,000) | (19,924,479) |
Net increase (decrease) in cash | (26,210,509) | (32,227,281) |
Cash and cash equivalents, beginning of period | 78,104,640 | 110,331,921 |
Cash and cash equivalents, end of period | 51,894,131 | 78,104,640 |
Supplemental cash flow information: | ||
Total cash and cash equivalents | 51,894,131 | 78,104,640 |
Cash paid for interest | 3,177,567 | 6,862,975 |
Life Partners IRA Holder Partnership, Llc [Member] | ||
Cash flows from operating activities: | ||
Net (decrease) increase in net assets resulting from operations | (48,713,536) | 11,265,343 |
Adjustments to reconcile net increase in net assets to net cash used in operations: | ||
Change in Investment in Life Partners Position Holder Trust | 48,588,366 | (11,300,869) |
Change in assets and liabilities: | ||
Change in due to/from Life Partners Position Holder Trust | 125,170 | 35,526 |
Net cash flows used in operating activities | 0 | 0 |
Cash flows from financing activities: | ||
Net increase (decrease) in cash | 0 | 0 |
Cash and cash equivalents, beginning of period | 0 | 0 |
Cash and cash equivalents, end of period | 0 | 0 |
Supplemental cash flow information: | ||
Total cash and cash equivalents | $ 0 | $ 0 |
Operations and Significant Acco
Operations and Significant Accounting Policies | 12 Months Ended |
Dec. 31, 2018 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Operations and Significant Accounting Policies | Operations Life Partners Position Holder Trust (the “Trust”) was created on December 9, 2016, pursuant to the Revised Third Amended Joint Plan of Reorganization of Life Partners Holdings, Inc., et al. In connection with its formation and the inception of its activities on December 9, 2016, the Trust issued a total of 1,012,355,948 units of beneficial interest (the “Units”) to the fractional interest holders having claims in the Debtors bankruptcy, pursuant to the Plan. Each fractional interest holder received a Unit for each dollar of expected death benefit such holder contributed to the Trust. As of December 31, 2018, there were 10,442 Description of Securities Units represent beneficial interests in the Trust, and all holders of Units are entitled to receive cash distributions from the Trust in accordance with their respective pro rata shares. A Trust beneficiary’s respective ‘‘Pro Rata Share’’ means the ratio, expressed as a percentage, of (i) the number of Units which such Trust Beneficiary is the registered owner, to (ii) the total number of Units outstanding as of the measurement date, subject to modification for purposes of distributing any recovered assets. Under the Plan, the Trustee will distribute at least annually to the Unit holders all of the distributable cash (as defined in the Position Holder Trust Agreement) generated during each calendar year, subject to any reserve established by the Trustee reasonably necessary to maintain the value of the Trust’s assets or to meet claims and contingent liabilities. All distributions by the Trust will be made in accordance with such holder’s Pro Rata share of the outstanding Units. Summary of Significant Accounting Policies Basis of Presentation The Trust’s primary purpose is the liquidation of the Trust’s assets and the distribution of proceeds to its beneficial interest holders. The Trust expects that fulfilling its purpose will require a significant amount of time, and that the Trust will have significant ongoing operations during that period due to the nature of its assets and its plan to maximize the proceeds to its beneficiaries by maintaining the majority of its life insurance policies until maturity. As a result, the Trust has concluded that its liquidation is not imminent, in accordance with the definitions under accounting principles generally accepted in the United States of America and has not applied the liquidation basis of accounting in presenting its financial statements. The Trust will continue to evaluate its operations to determine when its liquidation becomes imminent and the liquidation basis of accounting is required. Investments in Life Insurance Policies The Trust accounts for its interests in life insurance policies at fair value in accordance with ASC 325-30, Investments in Insurance Contracts Fair Value of Life Insurance Policies The Trust follows ASC 820, Fair Value Measurements and Disclosures As a basis for considering such assumptions, the guidance establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. Level 1 relates to quoted prices in active markets for identical assets or liabilities. Level 2 relates to observable inputs other than quoted prices included in Level 1. Level 3 relates to unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The Trust’s investments in life insurance policies are considered to be Level 3 as there is currently no active market where the Trust is able to observe quoted prices for identical assets and the Trust’s valuation model incorporates significant inputs that are not observable. The Trust’s valuation of life insurance policies is a critical estimate within the financial statements. The Trust currently uses a probabilistic method of valuing life insurance policies, which the Trust believes to be the preferred valuation method in its industry. The Trust calculates the assets’ fair value using a present value technique to estimate the fair value of the projected future cash flows. The most significant assumptions in estimating the fair value are the Trust’s estimate of the insureds’ life expectancy and the discount rate. See Note 6, “Fair Value Measurements”. Income Recognition The Trust’s investments in life insurance policies are its primary source of income. Gain or loss is recognized from ongoing changes in the portfolio’s estimated fair value, including any gains or losses at maturity. Gains or losses from maturities are recognized at receipt of a death notice or verified obituary for an insured party and determined based on the difference between the death benefit and the estimated fair value of the policy at maturity. Premiums Receivable The Trust assumed the Debtors’ receivables related to life insurance policy premiums and service fees that were paid by the Debtors on behalf of fractional interest holders prior to the Trust’s effective date. After December 9, 2016, the policy premiums allocable to continuing fractional interest holders are those persons' obligations and not the Trust. If a continuing fractional interest holder defaults on future premium obligations, such position is deemed contributed to the Trust in exchange for the number of Units provided by the Plan, as recently modified by the Bankruptcy Court. The Trust maintains an allowance for doubtful accounts for estimated losses resulting from the inability to collect premiums and service fees receivable. Such estimates are based on the position holder’s payment history and other indications of potential uncollectability. After all attempts to collect a receivable have failed, receivables are written off against the allowance. At December 31, 2018 and December 31, 2017, the allowance for doubtful accounts was $10.0 million and $5.0 million, respectively, and fully offset for receivables assumed from the Debtors on the effective date. Outstanding receivable balances may be recoverable pursuant to the Trustee’s set-off rights under the Plan. Maturities Receivable Maturities receivable consist of the Trust’s portion of life insurance policy maturities that occurred, but payment was not received as of the end of the reporting period. Income Taxes No provision for state or Federal income taxes has been made as the liability for such taxes is attributable to the Unit holders rather than the Trust. The Trust is a grantor trust with taxable income or loss passing through to the Unit holders. In certain instances, however, the Trust may be required under applicable state laws to remit directly to state tax authorities amounts otherwise due to Unit holders. Such payments on behalf of the Unit holders are deemed distributions to them. The FASB has provided guidance for how uncertain tax positions should be recognized, measured, disclosed, and presented in the financial statements. This requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Trust’s tax returns to determine whether the tax positions are more-likely-than-not of being sustained when challenged or when examined by the applicable taxing authority. The Trust has no material uncertain income tax positions as of December 31, 2018 and 2017. The Trust also assumed income tax liabilities of the Debtors at its inception which total approximately $2.0 and $2.0 million as of December 31, 2018 and 2017, respectively, related to taxes, penalties, and interest from the Debtors’ 2008, 2009, and 2010 income tax returns. These obligations bear interest at 4% annually and are due in full by January 2020. Use of Estimates The preparation of these financial statements, in conformity with generally accepted accounting principles in the United States of America (“GAAP”), requires the Trust to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting periods. Actual results could differ from these estimates and such differences could be material. The estimates related to the valuation of the life insurance policies represent significant estimates made by the Trust. Risks and Uncertainties The Trust encounters economic, legal, and longevity risk. The main components of economic risk potentially impacting the Trust are market risk, concentration of credit risk, and the increasing cost of insurance risk. The Trust’s market risks include interest rate risk and the risk of declines in valuation of the Trust’s life insurance policies, including declines caused by the selection of increased discount rates associated with the Trust’s fair value model. It is reasonably possible that future changes to estimates involved in valuing life insurance policies could change and materially affect future financial statements. Concentration of credit risk is the risk that an insurance carrier who has issued life insurance policies held by the Trust, does not remit the amount due under those policies due to the carrier’s deteriorating financial condition or otherwise. Another credit risk potentially impacting the Trust is the risk continuing fractional holders may default on their future premium obligations, increasing the Trust’s premium obligations. The increasing cost of insurance risk includes the carriers’ attempts to change a policy’s cost of insurance. While some cost of insurance increases are anticipated and taken into consideration in the Trusts forecasts, other cost of insurance increases are unilaterally imposed by the carrier. In the second quarter of 2018, one carrier increased the cost of insurance associated with its policies held by the Trust, representing about $188 million in face value, by approximately 45% over the prior cost of insurance. There is no additional impact in third and fourth quarters of 2018 from this carrier. The main components of legal risk are: (i) the risk that an insurer could successfully challenge its obligation to pay policy benefits at maturity; and (ii) that an insured’s family could successfully challenge the Trust’s entitlement to an insurance policy’s benefits. In either case, there is also risk that the Trust would be unable to recover the premiums it paid towards the insurance policy. Longevity risk refers to the reasonable possibility that actual mortalities of insureds in the Trust’s portfolio extend over longer periods than are anticipated, resulting in the Trust paying more in premiums and delaying its collection of death benefits. Further, increased longevity may encourage additional continuing fraction holders to default on their premium obligations, increasing the Trust’s positions and its premium payment burden. The Trust management is still evaluating any potential impact; however, such future revisions could have a material impact on the valuation The Trust maintains the majority of its cash in several accounts with a commercial bank. Balances on deposit are insured by the Federal Deposit Insurance Corporation (“FDIC”). However, from time to time the Trust's balances may exceed the FDIC insurable amounts. Creditors’ Trust Funding Liability The Trust was required to Premium Liability Premium liabilities are funds in escrow on behalf of continuing fractional holders for future payment of their premium obligations. If such funds are not used for such continuing fractional holder’s premium payments, they are refunded to the respective continuing fractional holder. Maturity Liability Maturity Liabilities are maturities collected on behalf of continuing factional holders pending payment. Reclassifications Certain reclassifications have been made to the 2018 financial statement presentation to correspond to the current year’s format. Total assets, net assets, and changes in net assets resulting from operations are unchanged due to these reclassifications. Recently Adopted Accounting Pronouncements In May 2014 FASB issued Accounting Standards Update ("ASU") No. 2014-09 ("ASC 606") "Revenue from Contracts with Customers," which supersedes the revenue recognition requirements in ASC 605 “Revenue Recognition” ("ASC 605") and requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Trust adopted ASC 606 as of January 1, 2018 using the retrospective transition method. There is no impact to the Trust's recognition of revenue associated with the adoption of ASC 606. In March 2018, the FASB issued ASU 2018-03, "Technical Corrections and Improvements to Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities" to clarify certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. In addition to amending Topic 825, Financial Instruments, FASB added Topic 321, Investments—Equity Securities, and made a number of consequential amendments to the codification. The amendments in ASU 2018-03 are effective for public business entities for fiscal years beginning after December 15, 2017 and for interim periods within those fiscal years beginning after June 15, 2018. The Trust adopted ASU 2018-03 in third quarter of 2018 and there was no impact on the recognition and measurement of financial assets and liabilities. |
Operations
Operations | 12 Months Ended |
Dec. 31, 2018 | |
Life Partners IRA Holder Partnership, Llc [Member] | |
Operations | The Partnership was created on December 9, 2016, pursuant to the Revised Third Amended Joint Plan of Reorganization of Life Partners Holdings, Inc., et al. In connection with its formation and the inception of its activities on December 9, 2016, the Partnership issued limited liability company interests (“Member Interests”) in satisfaction of claims against the Debtors. The only assets of the Partnership are beneficial interest units of the Trust. The Partnership held 747,775,628 and 733,164,743 units as of December 31, 2018 and December 31, 2017, respectively, of the Trust’s outstanding units totaling 1,237,019,204 and 1,162,059,511 as of December 31, 2018 and December 31, 2017, respectively. The sole purpose of the Partnership is to hold Trust interests to permit holders of Partnership Interests to participate in distributions of the proceeds of the liquidation of the Trust. The Partnership was created to allow IRA Holders to hold an interest in an entity classified as a partnership for federal tax purposes, rather than the assets of a grantor trust, such as the Position Holder Trust. The Partnership’s sole asset is its investment in the Trust and it engages in no other business activity. |
Significant Accounting Policies
Significant Accounting Policies | 12 Months Ended |
Dec. 31, 2018 | |
Life Partners IRA Holder Partnership, Llc [Member] | |
Significant Accounting Policies | Equity Method Accounting The Partnership accounts for its investment in the PHT using the equity method of accounting in accordance with Accounting Standards Codification (ASC) 323, Investments – Equity Method and Joint Ventures. The Partnership and the Trust are closely connected, with a common trustee and common management. As a result of this common oversight and control, as well as the Partnership’s position as the majority holder of the Trust’s beneficial interest units, the Partnership is considered to have significant influence under the provisions of ASC 323, resulting in the application by the Partnership of the equity method of accounting. Undistributed earnings (losses) attributable to the Partnership’s interests in the Trust and recognized under the equity method represented approximately ( The following table presents summarized Trust financial data: Balance Sheet data December 31, 2018 December 31, 2017 Life insurance policies $ 186,251,760 $ $ 272,140,787 All other assets 76,486,910 97,624,877 Total Assets $ 262,738,670 $ $ 369,765,664 Total Liabilities $ 93,732,074 $ $ 130,824,276 Net Assets 169,006,596 $ $ 238,941,388 Income Statement Data December 31, 2018 December 31, 2017 Change in the fair value of life insurance policies $ (62,215,770) $ 49,930,097 Other income 1,358,807 672,712 Total (loss) income $ (60,856,963) $ 50,602,809 Total expenses $ 9,673,691 $ 15,410,975 Net (decrease) increase in net assets resulting from operations $ (70,530,654) $ 3 5,191,834 Income Taxes No provision for state or Federal income taxes has been made as the liability for such taxes is attributable to the members rather than the Partnership. The Partnership is a limited liability company with taxable income or loss passing through to the members. In certain instances, however, the Partnership may be required under applicable state laws to remit directly to state tax authorities amounts otherwise due to members. Such payments on behalf of the members are deemed distributions to them. The Financial Accounting Standards Board (the “FASB”) has provided guidance for how uncertain tax positions should be recognized, measured, disclosed, and presented in the financial statements. This requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Partnership’s tax returns to determine whether the tax positions are more-likely-than-not of being sustained when challenged or when examined by the applicable taxing authority. The Partnership has no material uncertain income tax positions as of December 31, 2018 or December 31, 2017. Use of Estimates The preparation of these financial statements, in conformity with generally accepted accounting principles in the United States of America (“GAAP”), requires the Partnership to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting periods. Actual results could differ from these estimates and such differences could be material. Risks and Uncertainties The Partnership, due to the nature of its assets and operations, is subject to significant risks and uncertainties affecting the Trust which encounters economic risk. The two main components of economic risk potentially impacting the Partnership's interest in the Trust are market risk and concentration of credit risk. Market risks include interest rate risk and the risk of declines in valuation of the Trust’s life insurance policies, including declines caused by the selection of increased discount rates associated with the Trust’s fair value model. Concentration of credit risk is the risk that an insurance carrier who has issued life insurance policies held by the Trust, does not remit the amount due under those policies due to the deteriorating financial condition of the carrier or otherwise. It is reasonably possible that future changes to estimates involved in valuing the Trust’s life insurance policies could change and result in material effects on the Partnership’s financial position and results of operation. |
Commitments and Contingencies
Commitments and Contingencies | 12 Months Ended |
Dec. 31, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | Litigation In accordance with applicable accounting guidance, the Trust establishes an accrued liability for litigation and regulatory matters when those matters present loss contingencies that are both probable and estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. When a loss contingency is not both probable and estimable, the Trust does not establish an accrued liability. As a litigation or regulatory matter develops, the Trust, in conjunction with any outside counsel handling the matter, evaluates on an ongoing basis whether such matter presents a loss contingency that is probable and estimable. Such matters will continue to be monitored for further developments. Indemnification of Certain Persons Under certain circumstances, the Trust may be required to indemnify certain persons performing services on behalf of the Trust for liability they may incur arising out of the indemnified persons' activities conducted on behalf of the Trust. There is no limitation on the maximum potential payments under these indemnification obligations, and, due to the number and variety of events and circumstances under which these indemnification obligations could arise, the Trust is not able to estimate such maximum potential payments. The Trust has not made any payments under such indemnification obligations, and no amount has been accrued in the accompanying financial statements for these indemnification obligations of the Trust. |
Restricted Cash
Restricted Cash | 12 Months Ended |
Dec. 31, 2018 | |
Restricted Cash [Abstract] | |
Restricted Cash | The Plan imposes restrictions on the Trust to maintain certain funds in segregated accounts. As of December 31, 2018, and 2017, the Trust has $51.2 million and $76.3 million, respectively, in restricted cash and cash equivalents. The restricted cash accounts are for: monies distributable to the fractional interest holders in policies that matured prior to the Plan becoming effective, maturities, premium reserves, premium obligations, and collateral deposits on debt. |
Life Insurance Policies
Life Insurance Policies | 12 Months Ended |
Dec. 31, 2018 | |
Investments, All Other Investments [Abstract] | |
Life Insurance Policies | As of December 31, 2018, the Trust owns an interest in 3,037 policies of which 548 are life settlement policies and 2,489 Life expectancy reflects the probable number of years remaining in the life of a class of persons determined statistically, affected by such factors as heredity, physical condition, nutrition, and occupation. It is not an estimate or an indication of the actual expected maturity date or indication of the timing of expected cash flows from death benefits. See “Life Insurance policies,” in Note 6, “Fair Value Measurements”. The following table summarizes the Trust's life insurance policies grouped by remaining life expectancy as of: December 31, 2018: Remaining Life Expectancy (Years) Number of Life Insurance Policies Face Value Fair Value 0-1 - $ - $ - 1-2 1 46,395 5,076 2-3 1 241,667 53,634 3-4 44 50,866,327 15,246,887 4-5 183 339,765,032 75,610,383 Thereafter 2,808 867,471,295 95,335,780 Total 3,037 1,258,390,716 186,251,760 December 31, 2017: Remaining Life Expectancy (Years) Number of Life Insurance Policies Face Value Fair Value 0-1 21 $ 45,189,634 $ 36,855,871 1-2 33 61,077,238 36,814,730 2-3 60 65,934,777 30,372,137 3-4 57 94,187,235 31,657,796 4-5 130 211,916,460 50,004,422 Thereafter 2839 784,622,390 86,435,831 Total 3140 $ 1,262,927,734 $ 272,140,787 Estimated premiums to be paid by the Trust for its portfolio during each of the five succeeding fiscal years and thereafter as of December 31, 2018, are as follows: 2019 $ 62,645,385 2020 65,941,038 2021 63,445,470 2022 57,621,423 2023 51,669,768 Thereafter 202,371,702 Total $ 503,694,786 The amount of $503.7 million represents the estimated total future premiums payable by the Trust. The Trust is required to pay its portion to keep the life insurance policies in force during the life expectancies of all the underlying insured lives. The estimated total future premium payments could increase or decrease significantly to the extent that insurance carriers increase the cost of insurance on their issued policies or that actual mortalities of insureds differ from the estimated life expectancies. If the continuing fractional holders default on their future premium obligations, the Trust’s premium liability may increase. The Trust anticipates funding the estimated premium payments from maturities of life insurance policies. It also maintains premium reserves and access to lines of credit. |
Notes Payable
Notes Payable | 12 Months Ended |
Dec. 31, 2018 | |
Debt Disclosure [Abstract] | |
Notes Payable | On December 9, 2016, the Trust obtained a term loan from Vida Opportunity Fund, LP, an affiliate of Vida Capital, Inc., for $55.0 million. Interest accrues at 11% of outstanding balance per annum and is paid quarterly. Substantially all of the Trust’s assets collateralize the loan. The Trust made principal payments of $31.0 million in 2018 leaving a balance outstanding on the term loan of $4.0 million at December 31, 2018. The maturity date of the term loan was December 9,2018; however, an extension was agreed to until June 7, 2019. On January 15, 2019, the Trust paid $4.0 million to Vida Opportunity Fund, LP for the final payment of the loan. On December 9, 2016, the Trust entered into a revolving line of credit with Vida Longevity Fund, LP, an affiliate of Vida Capital, Inc., for $25.0 million. Interest accrues at 11% of outstanding balance and is paid quarterly. The line of credit matured on December 9, 2018, at which point there was no amount outstanding. As of December 31, 2017, there were no amounts outstanding on the line of credit. Subsequent to the closing of the reporting period, ef Also subsequent to the closing of the reporting period, to provide for short term capital needs of the Position Holders Trust, if any, effective as of January 30, 2019, the Position Holders Trust entered into a $15 million revolving credit facility with Veritex Community Bank of Dallas (“Veritex Credit Facility”), Texas. The Veritex Credit Facility, is secured by a lien on the Position Holder Trust’s assets, has an initial 2-year term and, as to any amounts drawn thereunder, shall bear interest at the rate of 6% per annum. In accordance with the Plan, the Trust issued New IRA notes of $35.9 million in exchange for claims against the Debtor’s estate and the incidental interests in life insurance policies. Those policies collateralize the Trust’s obligations under the notes. Interest accrues at 3% of outstanding balance and is paid annually in December. Principal is due in full on December 9, 2031. In accordance with the notes, beginning in December 2017, the Trust is required to make annual payments to a sinking fund for the principal payment due at maturity. Such fund is included in restricted cash on the accompanying balance sheet. On March 28, 2017, the Trust, was ordered to pay the Chapter 11 trustee’s fees totaling $5.5 million. The first payment of $2.8 million was paid in 2017. The remaining balance is in the form of a note payable in the amount of $2.8 million and is due in three equal annual payments on January 1 beginning in 2019. The note does not bear interest as ordered by the Court, thus the note has been discounted by $0.2 million, based on an implied interest rate of 3%. As of December 31, 2018, and 2017, the outstanding balance was $2.7 million and $2.6 million, respectively. Future scheduled principal payments on the notes payable and required sinking fund contributions are as follows as of December 31, 2018: Year ending December 31: Sinking Fund Note Payable 2019 $ 2,392,072 $ 4,916,667 2020 2,392,072 916,667 2021 2,392,072 837,347 2022 2,392,072 2023 2,392,072 - Thereafter 19,136,570 35,897,436 Total $ 31,096,930 $ 42,568,117 The sinking fund balance as of December 31, 2018 and 2017 is $4.8 million and $2.4 million, respectively. |
Fair Value Measurements
Fair Value Measurements | 12 Months Ended |
Dec. 31, 2018 | |
Fair Value Disclosures [Abstract] | |
Fair Value Measurements | The Trust carries its life insurance policies at fair value. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are classified based on the following fair value hierarchy: Level 1 — Valuation is based on unadjusted quoted prices in active markets for identical assets and liabilities that are accessible at the reporting date. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment. Level 2 — Valuation is determined from pricing inputs that are other than quoted prices in active markets that are either directly or indirectly observable as of the reporting date. Observable inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and interest rates and yield curves that are observable at commonly quoted intervals. Level 3 — Valuation is based on inputs that are both significant to the fair value measurement and unobservable. Level 3 inputs include situations where there is little, if any, market activity for the financial instrument. The inputs into the determination of fair value generally require significant management judgment or estimation. The balances of the Trust's assets measured at fair value on a recurring basis as of December 31, 2018 and 2017, are as follows: As of December 31, 2018 As of December 31, 2017 Assets: Investments in Life Insurance Policies Level 1 $ - $ - Level 2 $ - $ - Level 3 $ 186,251,760 $ 272,140,787 Total Fair Value $ 186,251,760 $ 272,140,787 Quantitative Information about Level 3 Fair Value Measurements Life insurance policies December 31, 2018 December 31, 2017 Fair Value $ 186,251,760 $ 272,140,787 Face Value $ 1,258,390,716 $ 1,262,927,734 Valuation Techniques Discounted Cash flow Discounted Cash flow Unobservable Inputs Discount rate Discount rate Range 24.8% - 25.8% 24.5% - 31.8% The life insurance policies’ fair value estimates were reduced significantly in 2018. The primary cause of the change was the use of standard mortality multipliers for all policies as opposed to using previous life expectancy estimates that were previously determined by the Debtor for certain policies. A secondary cause was the increase in the cost of insurance imposed by certain life insurance companies on a number of policies in the PHT Portfolio In assessing and determining the PHT Portfolio’s valuation, the Position Holder Trust retained Lewis & Ellis, Inc. as its principal actuaries. The following is a summary of the methodology used to estimate the assets’ fair value measured on a recurring basis and within the above fair value hierarchy. The overall fair value methodology has been consistently applied; however, certain assumptions are revised as appropriate at each reporting period. For the prior year and the first quarter of 2018, the PHT Portfolio’s value was estimated using an actuarially based approach incorporating net cash flows and life expectancies as provided by third-party life expectancy providers when they were available. This approach applied a monthly mortality scale as generated by the specific life expectancy (“LE”) and/or a default mortality multiplier of each insured which was used to project the PHT Portfolio’s present value of net cash flows (death benefits less premium payments and servicing company compensation). The mortality scale was actuarially rolled forward from the LE underwriting date to the valuation date. The LEs that the Trust holds were issued by life expectancy providers to the Debtor during the course of the bankruptcy. The LEs were approaching, and in some cases exceeding, two years since issuance. As LEs age, they become less reliable because they are based on increasingly out of date medical information. After two years, many industry participants obtain new medical information from insureds and purchase new LEs. The Trust does not purchase new LEs because of the significant time and financial burden that would be required to obtain new medical releases from the insureds and collect their medical records from various doctors, clinics and hospitals. Because it had a number of LEs that were becoming aged and, thus, less reliable, the Trust began to incrementally phase out the LEs in favor of a mortality multiplier based on the 2015 Valuation Basic Table produced by the U.S. Society of Actuaries (“2015 VBT”) beginning in December 31, 2017. Accordingly, as the LEs aged, less weight would be applied to them and more weight would be placed with the default mortality multiplier. A 25% discount would be applied quarterly starting 21 months past the underwriting date until the aged LE date was fully discounted and replaced by the default mortality multiplier. A LE that is 24 to 26 months old would have a 50% discount, an LE that is 27 to 29 months old will have a 75% discount, and an LE greater than or equal to 30 months would only use the default mortality multiplier, as described below. The Trust anticipated eliminating reliance on most of its LEs in favor of the mortality multiplier by the end of calendar year 2018. If a policy did not have a LE, or the LE became aged, a default mortality multiplier was used, based on the 2015 VBT. As a result of its planned comparison of actual to expected mortalities during the second quarter of 2018, the Trust noticed a growing divergence between actual and expected maturities. After further analysis, the Trust determined that the LEs in its possession were less reliable than previously understood and that the mortality multipliers were providing more accurate longevity projections across the portfolio. Accordingly, the Trust’s management decided to accelerate its migration towards the mortality multipliers and stop using the LEs. Beginning in the second quarter of 2018, the PHT Portfolio’s value was estimated using an actuarially based approach incorporating net cash flows and life expectancies as determined by a default mortality multiplier based on the 2015 VBT. A default mortality multiplier for each insured was used to project the PHT Portfolio’s present value of net cash flows (death benefits less premium payments and servicing company compensation). The default mortality multipliers have changed during 2018. The multipliers used in 2018 are 110% for males and 90% for females the the life settlements, and 350% for the viaticals regardless of gender. In 2017, the multipliers used were 100% for males and females for the life settlements and 350% for the viaticals regardless of gender. On a quarterly basis, the Trust compares actual mortalities to expected mortalities to refine its analysis. The exclusive use of the mortality multipliers has had the effect of extending anticipated longevity of the insureds in the PHT Portfolio. As a result, the amount of premiums that the Trust anticipates paying increased as did the anticipated length of time before the receipt of the death benefit. These factors were major contributors to the 2018 reduction in the estimated fair value of the PHT Portfolio. The Trust is continually assessing and revising the estimates of future maturities and premium obligations. The Trust will continue to monitor historical deaths on a quarterly basis. We will compare actual to expected mortalities to refine our mortality multipliers; such that they reasonably “validate” based on our analysis of trends. An in-depth review of the historical death experience to the mortality tables will be conducted on our third quarter results as an annual process to ensure the Trust information is current for the most accurate estimating process of valuing the investment portfolio. The servicing company is paid 2.65% of each maturity as compensation. All estimated cash flows of the Policies are net of such compensation. The monthly net cash flows with interest and survivorship were discounted to arrive at the PHT Portfolio’s estimated value as of December 31, 2018 and 2017. Future changes in the longevity estimates and estimated cash flows could have a material effect on the PHT Portfolio’s fair value, and the Trust’s financial condition and results of operations. . Life expectancy sensitivity analysis Life expectancy estimates are a significant input in the fair value determination. Future changes in the life expectancy estimates could have a material effect on the Portfolio’s fair value, which could have a material effect on its financial condition and results of operations. The tables below reflect the effect on the PHT Portfolio’s fair value if the actual life expectancy experienced is 5% less or 5% more than is currently estimated. If the life expectancy estimates increase by 5% or decrease by 5%, the change in estimated fair value of the life insurance policies would be as follows: As of December 31, 2018 Life Expectancy Months Adjustment Average Life Expectancy Fair Value Change in Fair Value -5% $ 202,547,381 $ 16,295,621 No change 5.2 years $ 186,251,760 - + 5% $ 169,348,101 $ (16,903,659) As of December 31, 2017 Life Expectancy Months Adjustment Average Life Expectancy Fair Value Change in Fair Value -5% $ 286,717,730 $ 14,576,943 No change 3.6 years $ 272,140,787 - + 5% $ 257,057,325 $ (15,083,462) The discount rate is another significant input in the fair value determination. The Trust’s estimate incorporates market factors, the size of the portfolio, and various policy specific quantitative and qualitative factors including known information about the underlying insurance policy, its economics, the insured and the insurer. The effect of changes in the weighted average discount rate on the death benefit and premiums used to estimate the PHT Portfolio’s fair value has been analyzed. If the weighted average discount rate increased or decreased by 2 percent and the other assumptions used to estimate fair value remained the same, the change in estimated fair value would be as follows: As of December 31, 2018 Rate Adjustment Fair Value Change in Fair Value + 2% $ 175,204,064 $ (11,047,696) No change $ 186,251,760 - - 2 % $ 198,679,523 $ 12,427,763 As of December 31, 2017 Rate Adjustment Fair Value Change in Fair Value +2% $ 259,806,309 $ (12,334,478) No change $ 272,140,787 - - 2% $ 285,785,223 $ 13,644,436 Future changes in the discount rates used by the Trust to value life insurance policies could have a material effect on the Trust's yield on life settlement transactions, which could have a material adverse effect on the Trust’s financial condition and results of operations. The Trust re-evaluates its discount rates at the end of every reporting period in order to estimate the discount rates that could reasonably be used by market participants in a transaction involving the Trust's life insurance policies. In doing so, the Trust engages third party consultants to corroborate its assessment, engages in discussions with other market participants and extrapolates the discount rate underlying actual sales of insurance policies. Credit Exposure to Insurance Companies The following table provides information about the life insurance issuer concentrations that exceed 10% of total death benefit and 10% of total fair value of the Trust's life insurance policies as of December 31, 2018: Carrier Percentage of Face Value Percentage of Fair Value Carrier Rating The Lincoln National Life Insurance 10.4% 13.4% A+ Transamerica Financial Life Insurance 9.6% 13.1% A+ December 31, 2017: Carrier Percentage of Face Value Percentage of Fair Value Carrier Rating The Lincoln National Life Insurance 11.5% 13.6% A+ Transamerica Financial Life Insurance 9.4% 11.5% A+ John Hancock Life Insurance (USA) 7.9% 12.4% A+ Changes in Fair Value The following table provides a roll-forward of the fair value of life insurance policies for the twelve months ended December 31, 2018 and 2017: 2018 2017 Balance at January 1, $ 272,140,787 $ 263,579,040 Realized gain on matured policies 64,451,763 60,812,229 Unrealized gain (loss) on policies held (126,667,533) (10,882,132) Change in estimated fair value (62,215,770) 49,930,097 Matured policies, net of fees (80,328,756) (78,913,426) Premiums paid 56,655,499 37,545,076 Balance at December 31, $ 186,251,760 $ 272,140,787 Other Fair Value Considerations- All assets and liabilities except for the life insurance policies, which includes cash, maturities and premium receivable, notes payable and premium and maturity liability, are accounted for at their carrying value which approximates fair value. |
Operations and Significant Ac_2
Operations and Significant Accounting Policies (Policies) | 12 Months Ended |
Dec. 31, 2018 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Basis of Presentation | The Trust’s primary purpose is the liquidation of the Trust’s assets and the distribution of proceeds to its beneficial interest holders. The Trust expects that fulfilling its purpose will require a significant amount of time, and that the Trust will have significant ongoing operations during that period due to the nature of its assets and its plan to maximize the proceeds to its beneficiaries by maintaining the majority of its life insurance policies until maturity. As a result, the Trust has concluded that its liquidation is not imminent, in accordance with the definitions under accounting principles generally accepted in the United States of America and has not applied the liquidation basis of accounting in presenting its financial statements. The Trust will continue to evaluate its operations to determine when its liquidation becomes imminent and the liquidation basis of accounting is required. |
Investments in Life Insurance Policies | The Trust accounts for its interests in life insurance policies at fair value in accordance with ASC 325-30, Investments in Insurance Contracts |
Fair Value of Life Insurance Policies | The Trust follows ASC 820, Fair Value Measurements and Disclosures As a basis for considering such assumptions, the guidance establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. Level 1 relates to quoted prices in active markets for identical assets or liabilities. Level 2 relates to observable inputs other than quoted prices included in Level 1. Level 3 relates to unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The Trust’s investments in life insurance policies are considered to be Level 3 as there is currently no active market where the Trust is able to observe quoted prices for identical assets and the Trust’s valuation model incorporates significant inputs that are not observable. The Trust’s valuation of life insurance policies is a critical estimate within the financial statements. The Trust currently uses a probabilistic method of valuing life insurance policies, which the Trust believes to be the preferred valuation method in its industry. The Trust calculates the assets’ fair value using a present value technique to estimate the fair value of the projected future cash flows. The most significant assumptions in estimating the fair value are the Trust’s estimate of the insureds’ life expectancy and the discount rate. See Note 6, “Fair Value Measurements”. |
Income Recognition | The Trust’s investments in life insurance policies are its primary source of income. Gain or loss is recognized from ongoing changes in the portfolio’s estimated fair value, including any gains or losses at maturity. Gains or losses from maturities are recognized at receipt of a death notice or verified obituary for an insured party and determined based on the difference between the death benefit and the estimated fair value of the policy at maturity. |
Premiums Receivable | The Trust assumed the Debtors’ receivables related to life insurance policy premiums and service fees that were paid by the Debtors on behalf of fractional interest holders prior to the Trust’s effective date. After December 9, 2016, the policy premiums allocable to continuing fractional interest holders are those persons' obligations and not the Trust. If a continuing fractional interest holder defaults on future premium obligations, such position is deemed contributed to the Trust in exchange for the number of Units provided by the Plan, as recently modified by the Bankruptcy Court. The Trust maintains an allowance for doubtful accounts for estimated losses resulting from the inability to collect premiums and service fees receivable. Such estimates are based on the position holder’s payment history and other indications of potential uncollectability. After all attempts to collect a receivable have failed, receivables are written off against the allowance. At December 31, 2018 and December 31, 2017, the allowance for doubtful accounts was $10.0 million and $5.0 million, respectively, and fully offset for receivables assumed from the Debtors on the effective date. Outstanding receivable balances may be recoverable pursuant to the Trustee’s set-off rights under the Plan. |
Maturities Receivable | Maturities receivable consist of the Trust’s portion of life insurance policy maturities that occurred, but payment was not received as of the end of the reporting period. |
Income Taxes | No provision for state or Federal income taxes has been made as the liability for such taxes is attributable to the Unit holders rather than the Trust. The Trust is a grantor trust with taxable income or loss passing through to the Unit holders. In certain instances, however, the Trust may be required under applicable state laws to remit directly to state tax authorities amounts otherwise due to Unit holders. Such payments on behalf of the Unit holders are deemed distributions to them. The FASB has provided guidance for how uncertain tax positions should be recognized, measured, disclosed, and presented in the financial statements. This requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Trust’s tax returns to determine whether the tax positions are more-likely-than-not of being sustained when challenged or when examined by the applicable taxing authority. The Trust has no material uncertain income tax positions as of December 31, 2018 and 2017. The Trust also assumed income tax liabilities of the Debtors at its inception which total approximately $2.0 and $2.0 million as of December 31, 2018 and 2017, respectively, related to taxes, penalties, and interest from the Debtors’ 2008, 2009, and 2010 income tax returns. These obligations bear interest at 4% annually and are due in full by January 2020. |
Use of Estimates | The preparation of these financial statements, in conformity with generally accepted accounting principles in the United States of America (“GAAP”), requires the Trust to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting periods. Actual results could differ from these estimates and such differences could be material. The estimates related to the valuation of the life insurance policies represent significant estimates made by the Trust. |
Risks and Uncertainties | The Trust encounters economic, legal, and longevity risk. The main components of economic risk potentially impacting the Trust are market risk, concentration of credit risk, and the increasing cost of insurance risk. The Trust’s market risks include interest rate risk and the risk of declines in valuation of the Trust’s life insurance policies, including declines caused by the selection of increased discount rates associated with the Trust’s fair value model. It is reasonably possible that future changes to estimates involved in valuing life insurance policies could change and materially affect future financial statements. Concentration of credit risk is the risk that an insurance carrier who has issued life insurance policies held by the Trust, does not remit the amount due under those policies due to the carrier’s deteriorating financial condition or otherwise. Another credit risk potentially impacting the Trust is the risk continuing fractional holders may default on their future premium obligations, increasing the Trust’s premium obligations. The increasing cost of insurance risk includes the carriers’ attempts to change a policy’s cost of insurance. While some cost of insurance increases are anticipated and taken into consideration in the Trusts forecasts, other cost of insurance increases are unilaterally imposed by the carrier. In the second quarter of 2018, one carrier increased the cost of insurance associated with its policies held by the Trust, representing about $188 million in face value, by approximately 45% over the prior cost of insurance. There is no additional impact in third and fourth quarters of 2018 from this carrier. The main components of legal risk are: (i) the risk that an insurer could successfully challenge its obligation to pay policy benefits at maturity; and (ii) that an insured’s family could successfully challenge the Trust’s entitlement to an insurance policy’s benefits. In either case, there is also risk that the Trust would be unable to recover the premiums it paid towards the insurance policy. Longevity risk refers to the reasonable possibility that actual mortalities of insureds in the Trust’s portfolio extend over longer periods than are anticipated, resulting in the Trust paying more in premiums and delaying its collection of death benefits. Further, increased longevity may encourage additional continuing fraction holders to default on their premium obligations, increasing the Trust’s positions and its premium payment burden. The Trust management is still evaluating any potential impact; however, such future revisions could have a material impact on the valuation The Trust maintains the majority of its cash in several accounts with a commercial bank. Balances on deposit are insured by the Federal Deposit Insurance Corporation (“FDIC”). However, from time to time the Trust's balances may exceed the FDIC insurable amounts. |
Creditors' Trust Funding Liability | The Trust was required to |
Premium Liability | Premium liabilities are funds in escrow on behalf of continuing fractional holders for future payment of their premium obligations. If such funds are not used for such continuing fractional holder’s premium payments, they are refunded to the respective continuing fractional holder. |
Maturity Liabilities | Maturity Liabilities are maturities collected on behalf of continuing factional holders pending payment. |
Reclassifications | Certain reclassifications have been made to the 2018 financial statement presentation to correspond to the current year’s format. Total assets, net assets, and changes in net assets resulting from operations are unchanged due to these reclassifications. |
Recently Issued Accounting Pronouncements | In May 2014 FASB issued Accounting Standards Update ("ASU") No. 2014-09 ("ASC 606") "Revenue from Contracts with Customers," which supersedes the revenue recognition requirements in ASC 605 “Revenue Recognition” ("ASC 605") and requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Trust adopted ASC 606 as of January 1, 2018 using the retrospective transition method. There is no impact to the Trust's recognition of revenue associated with the adoption of ASC 606. In March 2018, the FASB issued ASU 2018-03, "Technical Corrections and Improvements to Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities" to clarify certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. In addition to amending Topic 825, Financial Instruments, FASB added Topic 321, Investments—Equity Securities, and made a number of consequential amendments to the codification. The amendments in ASU 2018-03 are effective for public business entities for fiscal years beginning after December 15, 2017 and for interim periods within those fiscal years beginning after June 15, 2018. The Trust adopted ASU 2018-03 in third quarter of 2018 and there was no impact on the recognition and measurement of financial assets and liabilities. |
Significant Accounting Polici_2
Significant Accounting Policies (Policies) | 12 Months Ended |
Dec. 31, 2018 | |
Income Taxes | No provision for state or Federal income taxes has been made as the liability for such taxes is attributable to the Unit holders rather than the Trust. The Trust is a grantor trust with taxable income or loss passing through to the Unit holders. In certain instances, however, the Trust may be required under applicable state laws to remit directly to state tax authorities amounts otherwise due to Unit holders. Such payments on behalf of the Unit holders are deemed distributions to them. The FASB has provided guidance for how uncertain tax positions should be recognized, measured, disclosed, and presented in the financial statements. This requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Trust’s tax returns to determine whether the tax positions are more-likely-than-not of being sustained when challenged or when examined by the applicable taxing authority. The Trust has no material uncertain income tax positions as of December 31, 2018 and 2017. The Trust also assumed income tax liabilities of the Debtors at its inception which total approximately $2.0 and $2.0 million as of December 31, 2018 and 2017, respectively, related to taxes, penalties, and interest from the Debtors’ 2008, 2009, and 2010 income tax returns. These obligations bear interest at 4% annually and are due in full by January 2020. |
Use of Estimates | The preparation of these financial statements, in conformity with generally accepted accounting principles in the United States of America (“GAAP”), requires the Trust to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting periods. Actual results could differ from these estimates and such differences could be material. The estimates related to the valuation of the life insurance policies represent significant estimates made by the Trust. |
Risks and Uncertainties | The Trust encounters economic, legal, and longevity risk. The main components of economic risk potentially impacting the Trust are market risk, concentration of credit risk, and the increasing cost of insurance risk. The Trust’s market risks include interest rate risk and the risk of declines in valuation of the Trust’s life insurance policies, including declines caused by the selection of increased discount rates associated with the Trust’s fair value model. It is reasonably possible that future changes to estimates involved in valuing life insurance policies could change and materially affect future financial statements. Concentration of credit risk is the risk that an insurance carrier who has issued life insurance policies held by the Trust, does not remit the amount due under those policies due to the carrier’s deteriorating financial condition or otherwise. Another credit risk potentially impacting the Trust is the risk continuing fractional holders may default on their future premium obligations, increasing the Trust’s premium obligations. The increasing cost of insurance risk includes the carriers’ attempts to change a policy’s cost of insurance. While some cost of insurance increases are anticipated and taken into consideration in the Trusts forecasts, other cost of insurance increases are unilaterally imposed by the carrier. In the second quarter of 2018, one carrier increased the cost of insurance associated with its policies held by the Trust, representing about $188 million in face value, by approximately 45% over the prior cost of insurance. There is no additional impact in third and fourth quarters of 2018 from this carrier. The main components of legal risk are: (i) the risk that an insurer could successfully challenge its obligation to pay policy benefits at maturity; and (ii) that an insured’s family could successfully challenge the Trust’s entitlement to an insurance policy’s benefits. In either case, there is also risk that the Trust would be unable to recover the premiums it paid towards the insurance policy. Longevity risk refers to the reasonable possibility that actual mortalities of insureds in the Trust’s portfolio extend over longer periods than are anticipated, resulting in the Trust paying more in premiums and delaying its collection of death benefits. Further, increased longevity may encourage additional continuing fraction holders to default on their premium obligations, increasing the Trust’s positions and its premium payment burden. The Trust management is still evaluating any potential impact; however, such future revisions could have a material impact on the valuation The Trust maintains the majority of its cash in several accounts with a commercial bank. Balances on deposit are insured by the Federal Deposit Insurance Corporation (“FDIC”). However, from time to time the Trust's balances may exceed the FDIC insurable amounts. |
Life Partners IRA Holder Partnership, Llc [Member] | |
Equity Method Accounting | The Partnership accounts for its investment in the PHT using the equity method of accounting in accordance with Accounting Standards Codification (ASC) 323, Investments – Equity Method and Joint Ventures. The Partnership and the Trust are closely connected, with a common trustee and common management. As a result of this common oversight and control, as well as the Partnership’s position as the majority holder of the Trust’s beneficial interest units, the Partnership is considered to have significant influence under the provisions of ASC 323, resulting in the application by the Partnership of the equity method of accounting. Undistributed earnings (losses) attributable to the Partnership’s interests in the Trust and recognized under the equity method represented approximately ( The following table presents summarized Trust financial data: Balance Sheet data December 31, 2018 December 31, 2017 Life insurance policies $ 186,251,760 $ $ 272,140,787 All other assets 76,486,910 97,624,877 Total Assets $ 262,738,670 $ $ 369,765,664 Total Liabilities $ 93,732,074 $ $ 130,824,276 Net Assets 169,006,596 $ $ 238,941,388 Income Statement Data December 31, 2018 December 31, 2017 Change in the fair value of life insurance policies $ (62,215,770) $ 49,930,097 Other income 1,358,807 672,712 Total (loss) income $ (60,856,963) $ 50,602,809 Total expenses $ 9,673,691 $ 15,410,975 Net (decrease) increase in net assets resulting from operations $ (70,530,654) $ 3 5,191,834 |
Income Taxes | No provision for state or Federal income taxes has been made as the liability for such taxes is attributable to the members rather than the Partnership. The Partnership is a limited liability company with taxable income or loss passing through to the members. In certain instances, however, the Partnership may be required under applicable state laws to remit directly to state tax authorities amounts otherwise due to members. Such payments on behalf of the members are deemed distributions to them. The Financial Accounting Standards Board (the “FASB”) has provided guidance for how uncertain tax positions should be recognized, measured, disclosed, and presented in the financial statements. This requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Partnership’s tax returns to determine whether the tax positions are more-likely-than-not of being sustained when challenged or when examined by the applicable taxing authority. The Partnership has no material uncertain income tax positions as of December 31, 2018 or December 31, 2017. |
Use of Estimates | The preparation of these financial statements, in conformity with generally accepted accounting principles in the United States of America (“GAAP”), requires the Partnership to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting periods. Actual results could differ from these estimates and such differences could be material. |
Risks and Uncertainties | The Partnership, due to the nature of its assets and operations, is subject to significant risks and uncertainties affecting the Trust which encounters economic risk. The two main components of economic risk potentially impacting the Partnership's interest in the Trust are market risk and concentration of credit risk. Market risks include interest rate risk and the risk of declines in valuation of the Trust’s life insurance policies, including declines caused by the selection of increased discount rates associated with the Trust’s fair value model. Concentration of credit risk is the risk that an insurance carrier who has issued life insurance policies held by the Trust, does not remit the amount due under those policies due to the deteriorating financial condition of the carrier or otherwise. It is reasonably possible that future changes to estimates involved in valuing the Trust’s life insurance policies could change and result in material effects on the Partnership’s financial position and results of operation. |
Significant Accounting Polici_3
Significant Accounting Policies (Tables) - Life Partners Position Holder Trust [Member] | 12 Months Ended |
Dec. 31, 2018 | |
Summarized Balance Sheet data | December 31, 2018 December 31, 2017 Life insurance policies $ 186,251,760 $ $ 272,140,787 All other assets 76,486,910 97,624,877 Total Assets $ 262,738,670 $ $ 369,765,664 Total Liabilities $ 93,732,074 $ $ 130,824,276 Net Assets 169,006,596 $ $ 238,941,388 |
Summarized Income Statement data | December 31, 2018 December 31, 2017 Change in the fair value of life insurance policies $ (62,215,770) $ 49,930,097 Other income 1,358,807 672,712 Total (loss) income $ (60,856,963) $ 50,602,809 Total expenses $ 9,673,691 $ 15,410,975 Net (decrease) increase in net assets resulting from operations $ (70,530,654) $ 3 5,191,834 |
Life Insurance Policies (Tables
Life Insurance Policies (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Investments, All Other Investments [Abstract] | |
Trust's life insurance policies grouped by remaining life expectancy | December 31, 2018: Remaining Life Expectancy (Years) Number of Life Insurance Policies Face Value Fair Value 0-1 - $ - $ - 1-2 1 46,395 5,076 2-3 1 241,667 53,634 3-4 44 50,866,327 15,246,887 4-5 183 339,765,032 75,610,383 Thereafter 2,808 867,471,295 95,335,780 Total 3,037 1,258,390,716 186,251,760 December 31, 2017: Remaining Life Expectancy (Years) Number of Life Insurance Policies Face Value Fair Value 0-1 21 $ 45,189,634 $ 36,855,871 1-2 33 61,077,238 36,814,730 2-3 60 65,934,777 30,372,137 3-4 57 94,187,235 31,657,796 4-5 130 211,916,460 50,004,422 Thereafter 2839 784,622,390 86,435,831 Total 3140 $ 1,262,927,734 $ 272,140,787 |
Estimated premiums to be paid by the Trust for its portfolio | 2019 $ 62,645,385 2020 65,941,038 2021 63,445,470 2022 57,621,423 2023 51,669,768 Thereafter 202,371,702 Total $ 503,694,786 |
Notes Payable (Tables)
Notes Payable (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Debt Disclosure [Abstract] | |
Future scheduled principal payments of notes payable and sinking fund contributions | Year ending December 31: Sinking Fund Note Payable 2019 $ 2,392,072 $ 4,916,667 2020 2,392,072 916,667 2021 2,392,072 837,347 2022 2,392,072 2023 2,392,072 - Thereafter 19,136,570 35,897,436 Total $ 31,096,930 $ 42,568,117 |
Fair Value Measurements (Tables
Fair Value Measurements (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Fair Value Disclosures [Abstract] | |
Assets measured at fair value on recurring basis | As of December 31, 2018 As of December 31, 2017 Assets: Investments in Life Insurance Policies Level 1 $ - $ - Level 2 $ - $ - Level 3 $ 186,251,760 $ 272,140,787 Total Fair Value $ 186,251,760 $ 272,140,787 |
Quantitative information about level 3 fair value measurements | Life insurance policies December 31, 2018 December 31, 2017 Fair Value $ 186,251,760 $ 272,140,787 Face Value $ 1,258,390,716 $ 1,262,927,734 Valuation Techniques Discounted Cash flow Discounted Cash flow Unobservable Inputs Discount rate Discount rate Range 24.8% - 25.8% 24.5% - 31.8% |
Change in estimated fair value | As of December 31, 2018 Life Expectancy Months Adjustment Average Life Expectancy Fair Value Change in Fair Value -5% $ 202,547,381 $ 16,295,621 No change 5.2 years $ 186,251,760 - + 5% $ 169,348,101 $ (16,903,659) As of December 31, 2017 Life Expectancy Months Adjustment Average Life Expectancy Fair Value Change in Fair Value -5% $ 286,717,730 $ 14,576,943 No change 3.6 years $ 272,140,787 - + 5% $ 257,057,325 $ (15,083,462) As of December 31, 2018 Rate Adjustment Fair Value Change in Fair Value + 2% $ 175,204,064 $ (11,047,696) No change $ 186,251,760 - - 2 % $ 198,679,523 $ 12,427,763 As of December 31, 2017 Rate Adjustment Fair Value Change in Fair Value +2% $ 259,806,309 $ (12,334,478) No change $ 272,140,787 - - 2% $ 285,785,223 $ 13,644,436 |
Credit exposure to insurance companies | December 31, 2018: Carrier Percentage of Face Value Percentage of Fair Value Carrier Rating The Lincoln National Life Insurance 10.4% 13.4% A+ Transamerica Financial Life Insurance 9.6% 13.1% A+ December 31, 2017: Carrier Percentage of Face Value Percentage of Fair Value Carrier Rating The Lincoln National Life Insurance 11.5% 13.6% A+ Transamerica Financial Life Insurance 9.4% 11.5% A+ John Hancock Life Insurance (USA) 7.9% 12.4% A+ |
Changes in fair value for Trust's life insurance policies | 2018 2017 Balance at January 1, $ 272,140,787 $ 263,579,040 Realized gain on matured policies 64,451,763 60,812,229 Unrealized gain (loss) on policies held (126,667,533) (10,882,132) Change in estimated fair value (62,215,770) 49,930,097 Matured policies, net of fees (80,328,756) (78,913,426) Premiums paid 56,655,499 37,545,076 Balance at December 31, $ 186,251,760 $ 272,140,787 |
Operations and Significant Ac_3
Operations and Significant Accounting Policies (Details Narrative) | Dec. 31, 2018USD ($)ShareholdersPoliciesshares | Dec. 31, 2017USD ($)ShareholdersPoliciesshares |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||
Number of unit holders | Shareholders | 10,442 | 10,187 |
Number of units outstanding (in shares) | shares | 1,237,019,204 | 1,162,059,511 |
Number of life insurance policies | Policies | 3,037 | 3,140 |
Fair value of life insurance policies | $ 186,251,760 | $ 272,140,787 |
Aggregate face value of life insurance policies | 1,258,390,716 | 1,262,927,734 |
Allowance for doubtful accounts | 10,000,000 | 5,000,000 |
Income tax liabilities of Debtors assumed | 2,000,000 | $ 2,000,000 |
Balance of loan outstanding | $ 4,000,000 |
Operations (Details Narrative)
Operations (Details Narrative) - shares | Dec. 31, 2018 | Dec. 31, 2017 |
Number of units outstanding (in shares) | 1,237,019,204 | 1,162,059,511 |
Life Partners IRA Holder Partnership, Llc [Member] | ||
Number of units of beneficial interest issued to fractional interest holders (in shares) | 747,775,628 | 733,164,743 |
Number of units outstanding (in shares) | 1,237,019,204 | 1,162,059,511 |
Significant Accounting Polici_4
Significant Accounting Policies (Details) - Life Partners IRA Holder Partnership, Llc [Member] - USD ($) | Dec. 31, 2018 | Dec. 31, 2017 |
Assets | ||
Investment in life insurance policies | $ 186,251,760 | $ 272,140,787 |
All other assets | 76,486,910 | 97,624,877 |
Total assets | 262,738,670 | 369,765,664 |
Total liabilities | 93,732,074 | 130,824,276 |
Net assets | $ 169,006,596 | $ 238,941,388 |
Significant Accounting Polici_5
Significant Accounting Policies (Details 1) - Life Partners IRA Holder Partnership, Llc [Member] - USD ($) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Income Statement Data | ||
Change in fair value of life insurance policies | $ (62,215,770) | $ 49,930,097 |
Other income | 1,358,807 | 672,712 |
Total (loss) income | (60,856,963) | 50,602,809 |
Total expenses | 9,673,691 | 15,410,975 |
Net (decrease) increase in net assets resulting from operations | $ (70,530,654) | $ 35,191,834 |
Restricted Cash (Details)
Restricted Cash (Details) - USD ($) | Dec. 31, 2018 | Dec. 31, 2017 |
Restricted Cash [Abstract] | ||
Restricted cash and cash equivalents | $ 51,221,993 | $ 76,304,593 |
Life Insurance Policies (Detail
Life Insurance Policies (Details) | Dec. 31, 2018USD ($)Policies | Dec. 31, 2017USD ($)Policies |
Number of life insurance policies | ||
0-1 | Policies | 0 | 21 |
1-2 | Policies | 1 | 33 |
2-3 | Policies | 1 | 60 |
3-4 | Policies | 44 | 57 |
4-5 | Policies | 183 | 130 |
Thereafter | Policies | 2,808 | 2,839 |
Total | Policies | 3,037 | 3,140 |
Face value | ||
0-1 | $ 0 | $ 45,189,634 |
1-2 | 46,395 | 61,077,238 |
2-3 | 241,667 | 65,934,777 |
3-4 | 50,866,327 | 94,187,235 |
4-5 | 339,765,032 | 211,916,460 |
Thereafter | 867,471,295 | 784,622,390 |
Face value of life insurance policies | 1,258,390,716 | 1,262,927,734 |
Fair value | ||
0-1 | 0 | 36,855,871 |
1-2 | 5,076 | 36,814,730 |
2-3 | 53,634 | 30,372,137 |
3-4 | 15,246,887 | 31,657,796 |
4-5 | 75,610,383 | 50,004,422 |
Thereafter | 95,335,780 | 86,435,831 |
Fair value of life insurance policies | $ 186,251,760 | $ 272,140,787 |
Life Insurance Policies (Deta_2
Life Insurance Policies (Details 1) | Dec. 31, 2018USD ($) |
Estimated premiums to be paid | |
2019 | $ 62,645,385 |
2020 | 65,941,038 |
2021 | 63,445,470 |
2022 | 57,621,423 |
2023 | 51,669,768 |
Thereafter | 202,371,702 |
Total | $ 503,694,786 |
Life Insurance Policies (Deta_3
Life Insurance Policies (Details Narrative) | Dec. 31, 2018USD ($)Policies | Dec. 31, 2017USD ($)Policies |
Number of life insurance policies | Policies | 3,037 | 3,140 |
Face value | $ 1,258,390,716 | $ 1,262,927,734 |
Fair value of life insurance policies | 186,251,760 | $ 272,140,787 |
Estimated total future premium payable | $ 503,700,000 | |
Life Settlement Contracts [Member] | ||
Number of life insurance policies | Policies | 3,037 | 600 |
Face value | $ 1,100,000,000 | $ 1,100,000,000 |
Fair value of life insurance policies | $ 182,000,000 | $ 270,600,000 |
Viatical Settlement Contract [Member] | ||
Number of life insurance policies | Policies | 548 | 2,540 |
Face value | $ 203,100,000 | $ 179,100,000 |
Fair value of life insurance policies | $ 4,300,000 | $ 1,500,000 |
Notes Payable (Details)
Notes Payable (Details) | Dec. 31, 2018USD ($) |
Sinking Fund Notes Payable [Member] | |
Future scheduled principal payments | |
2019 | $ 2,392,072 |
2020 | 2,392,072 |
2021 | 2,392,072 |
2022 | 2,392,072 |
2023 | 2,392,072 |
Thereafter | 19,136,570 |
Long-term debt | 31,096,930 |
Notes Payable, Other Payables [Member] | |
Future scheduled principal payments | |
2019 | 4,916,667 |
2020 | 916,667 |
2021 | 837,347 |
2022 | 0 |
2023 | 0 |
Thereafter | 35,897,436 |
Long-term debt | $ 42,568,117 |
Notes Payable (Details Narrativ
Notes Payable (Details Narrative) - USD ($) | Dec. 31, 2018 | Dec. 31, 2017 |
Balance of loan outstanding | $ 4,000,000 | |
Notes Payable for Chapter 11 Trustee Fees [Member] | ||
Notes payable | 2,700,000 | $ 2,600,000 |
Sinking Fund Notes Payable [Member] | ||
Notes payable | $ 4,800,000 | $ 2,400,000 |
Fair Value Measurements (Detail
Fair Value Measurements (Details) - USD ($) | Dec. 31, 2018 | Dec. 31, 2017 |
Fair value of life insurance policies | $ 186,251,760 | $ 272,140,787 |
Level 1 [Member] | ||
Fair value of life insurance policies | 0 | 0 |
Level 2 [Member] | ||
Fair value of life insurance policies | 0 | 0 |
Level 3 [Member] | ||
Fair value of life insurance policies | $ 186,251,760 | $ 272,140,787 |
Fair Value Measurements (Deta_2
Fair Value Measurements (Details 1) - USD ($) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Fair Value Disclosures [Abstract] | ||
Fair value of life insurance policies | $ 186,251,760 | $ 272,140,787 |
Face value of life insurance policies | $ 1,258,390,716 | $ 1,262,927,734 |
Valuation techniques | Discounted cash flow | Discounted cash flow |
Unobservable inputs | Discount rate | Discount rate |
Range | 24.8% - 25.8% | 24.5% - 31.8% |
Fair Value Measurements (Deta_3
Fair Value Measurements (Details 2) - USD ($) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Life expectancy sensitivity analysis | ||
Average life expectancy | 5 years 2 months 12 days | 3 years 7 months 6 days |
Impact of -5% in life expectancy, fair value | $ 202,547,381 | $ 286,717,730 |
No change, fair value | 186,251,760 | 272,140,787 |
Impact of +5% in life expectancy, fair value | 169,348,101 | 257,057,325 |
Impact of -5% change in life expectancy, change in fair value | 16,295,621 | 14,576,943 |
Impact of +5% change in life expectancy, change in fair value | (16,903,659) | (15,083,462) |
Discount rate | ||
Impact of +2% in discount rate, fair value | 175,204,064 | 259,806,309 |
No change, fair value | 186,251,760 | 272,140,787 |
Impact of -2% in discount rate, fair value | 198,679,523 | 285,785,223 |
Impact of +2% change in discount rate, change in fair value | (11,047,696) | (12,334,478) |
Impact of -2% change in discount rate, change in fair value | $ 12,427,763 | $ 13,644,436 |
Fair Value Measurements (Deta_4
Fair Value Measurements (Details 3) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
The Lincoln National Life Insurance [Member] | Face Value of Life Insurance Policies [Member] | ||
Concentrations risk percentage | 10.40% | 11.50% |
Carrier rating | A+ | A+ |
The Lincoln National Life Insurance [Member] | Fair Value of Life Insurance Policies [Member] | ||
Concentrations risk percentage | 13.40% | 13.60% |
Carrier rating | A+ | A+ |
Transamerica Financial Life Insurance [Member] | Face Value of Life Insurance Policies [Member] | ||
Concentrations risk percentage | 9.60% | 9.40% |
Carrier rating | A+ | A+ |
Transamerica Financial Life Insurance [Member] | Fair Value of Life Insurance Policies [Member] | ||
Concentrations risk percentage | 13.10% | 11.50% |
Carrier rating | A+ | A+ |
John Hancock Life Insurance (USA) [Member] | Face Value of Life Insurance Policies [Member] | ||
Concentrations risk percentage | 7.90% | |
Carrier rating | A+ | |
John Hancock Life Insurance (USA) [Member] | Fair Value of Life Insurance Policies [Member] | ||
Concentrations risk percentage | 12.40% | |
Carrier rating | A+ |
Fair Value Measurements (Deta_5
Fair Value Measurements (Details 4) - Life Settlement Contracts [Member] - USD ($) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Beginning balance | $ 272,140,787 | $ 263,579,040 |
Realized gain on matured policies | 64,451,763 | 60,812,229 |
Unrealized gain (loss) on policies held | (126,667,533) | (10,882,132) |
Change in estimated fair value | (62,215,770) | 49,930,097 |
Matured policies, net of fees | (80,328,756) | (78,913,426) |
Premiums paid | 56,655,499 | 37,545,076 |
Ending balance | $ 186,251,760 | $ 272,140,787 |