Section 1035 Exchange

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Section 1035 Exchange

The tax-exempt exchange of two annuities or life insurance policies. The annuities exchanged are not assessed capital gains or any other taxes. Section 1035 exchanges allow a policyholder to avoid taxes that would have been levied on the first annuity or policy as long as the second is of equal or greater cost. The IRS only recognizes a Section 1035 exchange as such if the annuities or policies are directly exchanged. Selling one and buying another, for example, does not count.
References in periodicals archive ?
While Section 1035 exchanges do not make sense in all situations and the protection and coverage provided by the current contract should be carefully weighed and considered, you and I know that clients' situations do change.
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.
Sales opportunities lie with prospects for Section 1035 exchanges, middle-aged consumers, and women, who constitute up to two-thirds of life/LTCI combination product purchasers.
So-called section 1035 exchanges are useful, but often overlooked, financial planning tools.
There are no Internal Revenue Service regulations on how to treat outstanding policy loans during section 1035 exchanges.
AMONG THE FACTORS CPAs should consider in advising clients about section 1035 exchanges are potential uninsurability, acquisition costs, cancellation penalties and unfavorable tax rules.
BECAUSE SECTION 1035 exchanges are complicated, a clear understanding of the rules is essential.
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.
This article discusses the factors to consider when evaluating policy replacement and offers planning tips for executing a section 1035 exchange.
When circumstances warrant policy replacement, a section 1035 exchange may be the tax-wise way to do so.
If the new policy's indebtedness equals the old one's, the exchange may qualify as a section 1035 exchange.
The course also covers NASD rules on Section 1035 exchanges, supervisory topics and use of the Internet by representatives.