For tax purposes, how is Joy's basis in the life insurance policy transferred to Jack?

In the context of transferring a life insurance policy, the basis of the policy is generally transferred to the new owner as it is, rather than being altered or reset in some way. This means that Jack, the new owner of the policy, will receive Joy's basis at the time of the transfer.

The basis is crucial for determining the tax implications when the policy is eventually sold or if there are distributions from it. Maintaining Joy's original basis helps ensure that any gain or loss is accurately reflected for tax purposes, accurately reflecting what was initially invested into the policy.

Furthermore, the choices that suggest the basis would be reset or adjusted either to fair market value or based on cash value do not align with tax regulations governing the transfer of life insurance policies. In many instances, the basis is simply carried over, keeping it aligned with the original owner's investment to preserve tax integrity over the policy's life. Thus, Jack assumes Joy’s basis, which is pivotal for subsequent transactions involving the policy.