The little known planning technique is called a Section 1035 exchange
and it's one of the best-kept secrets in long-term care planning today," shares Jesse Slome, executive director of the American Association for Long-Term Care Insurance, a national organization that advocates for the importance of long-term care planning.
In many cases where a client is looking to replace an existing financial product with a new product, a tax-free IRC Section 1035 exchange
may seem like an ideal solution--the client is able to replace the current product with a more suitable product without adverse tax consequences.
In particular, these changes have converged to create an opportunity to use an Internal Revenue Code Section 1035 exchange
to address potential long-term care funding needs.
Also, if the non-qualified SPIA is part of a Section 1035 exchange
from an existing deferred annuity, this will have a bearing on whether the pre-59-and-a-half penalty tax of 10 percent will apply to the taxable part of the non-qualified SPIA.
The effect of an IRC Section 1035 exchange
on the grandfathered status of a policy issued prior to June 21, 1988, and thus not subject to the seven pay test of IRC Section 7702A is not entirely clear.
A section 1035 exchange
may provide a higher death benefit and cash surrender values than the original policy, but even if it does improve upon the old policy, it may not be the optimal solution.
Do a partial Section 1035 exchange
, using the proceeds to pay for a standalone LTCI policy
For purposes of a Section 1035 exchange
, an endowment contract is considered a contract "which depends in part on the life expectancy of the insured, but which may be payable in full in a single payment during his life.
A section 1035 exchange
on its own will not cause a contract to come under the new rules, but a material increase in death benefit or other material change in connection with the exchange will.
The IRS claimed it was not a Section 1035 exchange
because the entir e company A annuity was not replaced by the company B annuity.
Since a number of financial and tax factors must be considered, the CPA may be in the best position to help a client make an objective determination about the appropriateness of using a section 1035 exchange
to replace a policy.
Extending the protection of the section 7805(b) relief provision to an annuity contract that is received from another insurance company pursuant to a section 1035 exchange
occurring subsequent to the effective date of Rev.