Embed Size (px)
Citation preview
Special Notice
• Not legal advice• If you encounter
annuities issued prior to 1986, rules may all be different
• Applies to non-qualified annuities
What are Valid Conditions for 1035 Exchange
• Owner, annuity, beneficiary same, maturity date same, but lots of flexibility as to type
• many to one• one to many• Partial• Main issue – will insurance company allow• Life to annuity over looked tax benefit
• (even works with term policy)
Who Should be the beneficiary of an annuity• Spouse is absolute best choice (make children
contingent)• If no spouse, then consider what happens if
contract is annuitant driven (AD) vs. Owner Driven (OD)
• NOT a trust, no “look through” provisions as with IRA beneficiaries
Who Should be the Owner and Annuitant of an Annuity?
• Do everything possible to make them the same person
• When age is a limitation of sale or commission, think through ramifications if • Owners dies first• Annuitant dies first• Know if contract is annuitant driven
• Non Natural persons okay as owners if “agent”
What’s the 59 ½ penalty rule?
• 10% penalty on taxable amounts• Except
• Payments received because of death of the holder (or primary annuitant if holder is non-natural person)
• Substantially equal lifetime payments (just like IRAs)
• Immediate annuities
Important Definitions
What are Problems When Owner and Annuitant not the Same
• One case study under 4 conditions• Annuitant driven annuity
• Owners dies first• Annuitant dies first
• Owner Driven annuity• Owner dies first• Annuitant dies first
Case
• Case• Bob age 70 owner• Mary (wife) age 55 Annuitant• Children are beneficiary
OD and Owner Dies
• Annuity terminates and children must distribute within 5 years or elect annuitization (within 60 days)
• Better structure would have been• Mary (wife of owner) as beneficiary• Kids as contingent beneficiary• Result= Mary could have continued
Annuity
OD and Annuitant Dies
• Bob may become new annuitant if contract so specifies or
• Bob selects a new annuitant (potential tax trap)
• Good idea to name contingent annuitant in original contract
AD and Owner Dies
• Since all contracts are OD, the annuity terminates, beneficiaries have 60 days to elect annuitization or 5 year payout (beneficiaries exempt from 10% penalty upon death of holder)
• Spousal continuance only applies if spouse is named as SOLE beneficiary and contract allows for spousal continuance (sometimes if spouse is partial beneficiary)
AD and Annuitant Dies
• Annuity pays out to children – they decide in 60 days on payout options
• Owners is deemed to have given a gift to children (estate consequence if more than $11,000)
• Beneficiaries pay tax and also 10% penalty if under 59 ½ (because on death of annuitant, beneficiary becomes the taxpayer)
Proper Structure Avoids• Untimely taxation• Unwanted gift taxes• The 10 percent IRS
penalty• Loss of spousal
continuation
Possible solution to bad structure
• 1035 to another contract that is OD, same owner, annuitant, beneficiary
• Then, owner changes the annuitant
What is the tax impact of a change in owner?
• Taxable event to owner• Exceptions
•Transfer between spouses•Transfer incident to divorce•Transfer to grantor trust (living
trust)
How is loss treated if annuity surrenders for loss or sold for
profit?
• Ordinary loss (excluding surrender charge)• the IRS says that a loss under a variable
annuity is treated as a miscellaneous itemized deduction subject to the 2% floor (others differ)
• Ordinary gain
Annuity gain is Income in Respect of Decedent
• Beneficiary gets a deduction for estate taxes paid by decedent as beneficiary receives payments• Example : $100,000 annuity subject to estate
taxes = 45%• Each portion of payment subject to income tax
received by beneficiary, may take deduction of 45%
Protection
• Creditor protection and bankruptcy protection are State specific
• States have guarantee funds that protect annuities but read that law before discussing
• Note that recent changes in creditor and bankruptcy protection for IRAs does NOT affect non-qualified annuities
What other agents do wrong
• Sell the hottest annuity and they don’t know the contract provisions. Smart agents work with 2-4 annuities and know the contract inside out
• Because these agents sell the “product du jour” and are product-centered, they never get referrals from other professionals
How to capitalize
• Study these resources (next page) and know more than other agents
• Send the Annuity Newsletter to CPAs and Eldercare attorneys each month
Resources
• Dick Duff – column in SMA• [email protected]
• Tax Facts www.nuco.com• Tax Facts News – monthly IRS updates• Contract Review Service
• http://www.contractstructure.com/Contract_Reviews.aspx
• Advanced UW dept of insurance company
To Meet Existing Annuity Owners
• Annuity Direct Marketing System• Attracts existing annuity owners• User feedback • 20% off code : ANN1213
"I just wanted to let you know that I'm having fantastic results with the system. Yesterday I mailed the postcard provided in the materials to 4,000 annuity owners in my geographic area. In the three hours, since the first call, I've received 15 calls.“ Michael W., Atlanta, GA Michael W., Atlanta, GA
"I received 38 calls on the first 5 days after I ran an ad for $89 in a monthly senior publication. The results from the first two ads have netted 11 sales ranging from $38,000 - $279,000. I would recommend this system to anyone who is in the senior market.“ Carl Carl W., Omaha, NE W., Omaha, NE
"I have never written a testimonial for anyone. I do believe that your "Annuity Owner Mistakes" program should be the first. I bought the program in March of 2003 and began to market it per your instructions in April 2003. Year to date, or I should say from April 2003 through today October 9, 2003 I have written $1,200,000 in Annuity Premium and $30,000 (oh, by the way) Life Premium. Please feel free to use me as a referral anytime.“ Carl P., Madison, NC Carl P., Madison, NC
To Meet Existing Annuity Owners
