Planning Point:Joint ownership of
non-qualified annuities creates more problems than it solves, including forced distribution at either owner's death.
This includes all types of qualified retirement plans such as IRAs, all non-qualified assets such as mutual funds, all
non-qualified annuities, and all cash value of life insurance.
If you have clients with existing cash value life insurance and/or
non-qualified annuities, there may be attractive ways to provide LTC protection with tax advantages and an avoidance of out-of-pocket premiums.
Moreover, life insurance policies and
non-qualified annuities can be exchanged tax-free for traditional LTC insurance policies.
Both life insurance and
non-qualified annuities can be exchanged tax-free under Section 1035 for a QLTCI (see page 554).
These hybrid Annuity/LTC plans are only available on
non-qualified annuities (qualified plans can't have a rider).
Taxable capital, whose earnings are subject to income taxes each year as it accumulates, may be placed inside of
non-qualified annuities and enjoy the advantage of not having to pay taxes on the investment earnings until withdrawal.
This only applies to
non-qualified annuities where the advisory fee is deducted from the annuity.
Taxable distributions from an annuity contract are subject to an additional 10 percent penalty tax unless the distribution meets one of the exceptions contained in IRC section 72(q)(2) dealing with
non-qualified annuities. One such exception to the 10 percent penalty is for a distribution on account of the death of the owner (holder).
This is because the 10-year period-certain SPIA is not payable over the lifetime or life expectancy of the SPIA owner according to one of the permitted SEPP life expectancy calculation methods of IRS Notice 2004-15 for
non-qualified annuities.
With some solutions, assets such as existing
non-qualified annuities, CDs and even qualified money can be used.
Do some clients want to stretch their dollar to provide for LTC, "just in case?" Do these clients have rainy day fund savings in
non-qualified annuities (which can be easily 1035 exchanged into these new combination contracts), CD's or low-risk mutual funds?
