Section 1035 Exchange

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.
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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.
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.
As legal owner of the contract, the trustee has all the usual contractual rights, including the right to make withdrawals, transfer ownership, surrender the contract, or do a Section 1035 exchange of the contract for another annuity while the annuitant is alive.
A Section 1035 exchange entails the direct assignment of one annuity or life insurance contract for another, without the contract-holder handling funds in the middle.
A Section 1035 exchange to a new policy with a larger face amount or other material change is now deemed a new contract on which proper notice and consent can be obtained before issue.
In addition, some policies in development are designed to transfer assets into an annuity or life insurance contract that will leverage the funds into a benefit pool, similar to the packaged policies, with a single premium or section 1035 exchange.
I can use a Section 1035 exchange to a contemporary contract that has a guaranteed minimum income benefit and that income benefit is doubled if they're admitted into a long-term care facility.
Every Section 1035 exchange, lapse, or surrender that you process is a great place to start.
The course also covers NASD rules on Section 1035 exchanges, supervisory topics and use of the Internet by representatives.