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relevant years. Dr Lo’s participation in the plan was
inconsistent with the terms thereof.
On April 28, 1994, the Marlton Plan purchased from Southland
Life Insurance Co. (Southland) a $3.2 million flexible premium
adjustable life insurance policy (certificate No. 0600008928) on
the life of Dr. Lo, age 52, and it paid Southland a $158,859
premium on the policy during that year.22 Dr. Lo’s death
beneficiary was an irrevocable trust by and between him and Ms.
Lo, as grantors, and Edward Lo as trustee. The policy’s cash
value (i.e., its accumulation value23 less surrender charges)
could be obtained by surrendering the policy, but the product was
designed to access that value by borrowing it through a “wash
loan” (i.e., a loan for which the interest rate charged thereon
equaled the interest rate earned on the policy). The Southland
policy’s accumulated value was $154,483 on December 28, 1994, its
surrender charge for that year was $68,800, and the interest
credited to the policy during that year approximated $5,046.96.
For 1994, a $3.2 million term insurance policy on the life of Dr.
Lo would have cost approximately $9,255.05.
22 Under the terms of the policy, after Southland received
an initial premium payment of $98,859, a minimum monthly premium
payment of $3,738.33 was required to prevent the policy from
lapsing during the first 5 years.
23 The accumulation value equaled the total premiums paid
plus commercial interest less the cost of term insurance and
administrative expenses.
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