On December 11, 2008, the House and Senate passed the Worker,
Retiree, and Employer Recovery Act. As of the writing of this,
President Bush had not yet signed the Act, but is expected to. The
Act states that no RMD is required for 2008. As you are aware, the
current global economic conditions have caused sharp declines in
many contract values. This Act is designed to provide relief to contract
owners who would otherwise be forced to take a distribution in
2009. The goal is to not force contract owners to take a distribution
when their contract is at a low point and instead allow those finds to
stay invested in the contract and participate in any economic recovery.
The RMD Rules, Briefly Stated:
• Individuals are required to take at least a minimum annual distribution
from their account after they reach their required beginning
date, which is April 1 after they reach 70 1/2.
• For beneficiaries of deceased individuals not already receiving
RMDs, the required beginning date is either following the 5th
anniversary of death (for a complete distribution) or following
the 1st anniversary of death (for a periodic distribution). Special
rules apply of the only designated beneficiary is the surviving
spouse.
The Situation That Congress Sought To Relieve:
• In the current economic environment, many contract values
have been diminished by the deep declines in the stock market.
• Congress was concerned that requiring individuals to take 2009
RMDs could have the unintended effect of forcing individual to
‘sell low.’ As a result, the RMD would diminish the likelihood of
the individual being able to participate in any economic recovery.
What The Act Changes:
• No RMD is required for 2009
• Any individual who attains age 70 1/2 in 2009 will not be required
to take a first RMD by April 1, 2010, but the distribution
for the 2010 calendar year must be taken by December 31,
2010.
• If the individual takes a partial withdrawal, the distribution is not
subject to the mandatory 20% withholding that is typically required
of RMDs.
• For beneficiaries under the 5-year rule, the 5-year deferral period
is extended by one year (example: if an individual died in
2007 the period would end in 2013 instead of 2012.)
***This information is provided as general guidance. It is not intended to be legal or tax advice. Any taxpayer should seek advice based on
the taxpayers particular circumstances from an independent tax advisor
Tuesday, December 30, 2008
Wednesday, December 24, 2008
Wednesday, November 12, 2008
Dealing With Trusts
When trusts are involved, there are basic rules that apply for applications as well as additional requirements with most carriers.
The wording on the trust and the application, must match. For example:
The John and Jane Doe Living Trust Dtd 1-1-2001
The John and Jane Doe Living Trust Dtd 1-1-2001 amended 1-1-2008
If the trust is the owner, additional requirements are required. Requirements vary from carrier to carrier, but the most common among carriers are either some type of Verification of Trust form, or actual trust documents. I am going to highlight the requirements for our two most used carriers.
Aviva: Put a Trust Verification form in effect on October 1, 2008. This is mandatory on all Annuity and Life Insurance products. This will hold up issue if not received with the policy. In addition, if a Trust is the primary beneficiary, this doc will also be required, however, this can be a delivery requirement. This form does have to be signed by the trustee(s). You will no longer need to send copies of the trust to the carrier, however, they do reserve the right to ask for trust docs on an individual basis.
Legacy Marketing Group: The carriers under the Legacy umbrella, Investors Insurance, Washington National, American National and OM Financial; all require a Verification of Trust Agreement when the trust is the owner. They also require the face page, trustee page and signature page of the trust docs. If the trust is the primary beneficiary they do not require the VTA or copies of the trust, however, all of these cases must go thru compliance review and this can result in a request for the documents, so the suggestion is to send them in. If family files (ex: one app for a husband, another app for a wife) are received at the same time and the Annuitant(s)/Owners(s) are the same and they are with the same carrier (both with IIC) they will accept one original VTA for all of the family files. However, if they are different carriers, each carrier has its own specific ppwk, so you would need ppwk for each carrier. If the Annuitant(s)/Owner(s) are not the same, an original VTA is required for each case.
If you have questions on wording for any application or what forms are required, don't hesitate to call our office and a member of our team will be more than happy to help you!
Happy Writing!
The wording on the trust and the application, must match. For example:
The John and Jane Doe Living Trust Dtd 1-1-2001
The John and Jane Doe Living Trust Dtd 1-1-2001 amended 1-1-2008
If the trust is the owner, additional requirements are required. Requirements vary from carrier to carrier, but the most common among carriers are either some type of Verification of Trust form, or actual trust documents. I am going to highlight the requirements for our two most used carriers.
Aviva: Put a Trust Verification form in effect on October 1, 2008. This is mandatory on all Annuity and Life Insurance products. This will hold up issue if not received with the policy. In addition, if a Trust is the primary beneficiary, this doc will also be required, however, this can be a delivery requirement. This form does have to be signed by the trustee(s). You will no longer need to send copies of the trust to the carrier, however, they do reserve the right to ask for trust docs on an individual basis.
Legacy Marketing Group: The carriers under the Legacy umbrella, Investors Insurance, Washington National, American National and OM Financial; all require a Verification of Trust Agreement when the trust is the owner. They also require the face page, trustee page and signature page of the trust docs. If the trust is the primary beneficiary they do not require the VTA or copies of the trust, however, all of these cases must go thru compliance review and this can result in a request for the documents, so the suggestion is to send them in. If family files (ex: one app for a husband, another app for a wife) are received at the same time and the Annuitant(s)/Owners(s) are the same and they are with the same carrier (both with IIC) they will accept one original VTA for all of the family files. However, if they are different carriers, each carrier has its own specific ppwk, so you would need ppwk for each carrier. If the Annuitant(s)/Owner(s) are not the same, an original VTA is required for each case.
If you have questions on wording for any application or what forms are required, don't hesitate to call our office and a member of our team will be more than happy to help you!
Happy Writing!
Friday, October 10, 2008
Thought for the Week
Every morning you are handed 24 golden hours. They are one of the few things in this world that you get free of charge. If you had all the money in the world, you couldn't buy an extra hour. What will you do with this priceless treasure? Remember, you must use it, as it is given only once. Once wasted, you can not get it back. ~ Unknown
Hope you all have a FANTASTIC day!
Hope you all have a FANTASTIC day!
Tuesday, September 30, 2008
What Is A 1035 Exchange?
In A Nutshell: IRS Code Section 1035 (a) provides a tax-free method of exchanging an existing life insurance or annuity contract for a new contract with a different company. However, certain requirements must be met. A 1035 exchange permits a contract owner to exchange an older contract for a new contract, as long as the new contract has better benefits and features while deferring income tax on any gain in the existing contract.
What are the basic requirements for a 1035 exchange? The exchange must be 'like-for-like,' meaning that the owner and annuitant/insured must be the same on both policies.
Can a 1035 exchange be used to add funds to an existing policy? In Revenue Ruling 2002-75, the IRS permitted an annuity owner to consolidate two contracts into one Now, many companies permit the use of a 1035 exchange to transfer an entire annuity contract into an existing contract with a different carrier.
Why is the IRS concerned about partial 1035 exchanges? A partial 1035 exchange occurs when an individual transfers a portion of an existing annuity contract into another existing annuity contract or into a new annuity contract. The IRS has indicated that some taxpayers may do a partial 1035 exchange in advance of planned distribution from the contract to minimize income tax on the distribution.
Example: Mr Client purchases a deferred annuity contract from Company 'A' for $100,000. The current value of the contract is $150,000. If Mr Client surrenders the Company 'A' policy and uses the proceeds to purchase a new contract from another company, he will owe income tax on the $50,000 of gain from the existing contract. (The money goes directly to Mr. Client and he deposits into his checking account and write a check to the new company.) Instead, Mr. Client decided to exchange his Company 'A' annuity for a Company 'B' annuity. The money goes direct from Company 'A' to Company 'B' and Mr. Client never sees the money. Mr. Client owes no income tax on the exchange, and his cost basis in the new contract remains at $100,000, which was equal to his basis in the Company 'A' annuity.
What are the basic requirements for a 1035 exchange? The exchange must be 'like-for-like,' meaning that the owner and annuitant/insured must be the same on both policies.
Can a 1035 exchange be used to add funds to an existing policy? In Revenue Ruling 2002-75, the IRS permitted an annuity owner to consolidate two contracts into one Now, many companies permit the use of a 1035 exchange to transfer an entire annuity contract into an existing contract with a different carrier.
Why is the IRS concerned about partial 1035 exchanges? A partial 1035 exchange occurs when an individual transfers a portion of an existing annuity contract into another existing annuity contract or into a new annuity contract. The IRS has indicated that some taxpayers may do a partial 1035 exchange in advance of planned distribution from the contract to minimize income tax on the distribution.
Example: Mr Client purchases a deferred annuity contract from Company 'A' for $100,000. The current value of the contract is $150,000. If Mr Client surrenders the Company 'A' policy and uses the proceeds to purchase a new contract from another company, he will owe income tax on the $50,000 of gain from the existing contract. (The money goes directly to Mr. Client and he deposits into his checking account and write a check to the new company.) Instead, Mr. Client decided to exchange his Company 'A' annuity for a Company 'B' annuity. The money goes direct from Company 'A' to Company 'B' and Mr. Client never sees the money. Mr. Client owes no income tax on the exchange, and his cost basis in the new contract remains at $100,000, which was equal to his basis in the Company 'A' annuity.
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