IRS Code §1035 Exchange – Long Term Care Planning

 

(a) General rules No gain or loss shall be recognized on the exchange of

(1)  a contract of life insurance for another contract of life insurance or for an endowment or annuity contract or for a qualified long-term care insurance contract; or [1]
 
(2)  a contract of endowment insurance
 
(A) for another contract of endowment insurance which provides for regular payments beginning at a date not later than the date payments would have begun under the contract exchanged, or
 
(B) for an annuity contract, or
 
(C) for a qualified long-term care insurance contract;
 
(3)  an annuity contract for an annuity contract or for a qualified long-term care insurance contract; or
 
(4)  a qualified long-term care insurance contract for a qualified long-term care insurance contract.   IRS §1035

 

(b) Definitions

 

For the purpose of this section—
 
(1) Endowment contract

 

A contract of endowment insurance is a contract with an insurance company 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.
(2) Annuity contract

 

An annuity contract is a contract to which paragraph (1) applies but which may be payable during the life of the annuitant only in installments. For purposes of the preceding sentence, a contract shall not fail to be treated as an annuity contract solely because a qualified long-term care insurance contract is a part of or a rider on such contract.
(3) Life insurance contract

 

A contract of life insurance is a contract to which paragraph (1) applies but which is not ordinarily payable in full during the life of the insured. For purposes of the preceding sentence, a contract shall not fail to be treated as a life insurance contract solely because a qualified long-term care insurance contract is a part of or a rider on such contract.
 
(c) Exchanges involving foreign persons

 

To the extent provided in regulations, subsection (a) shall not apply to any exchange having the effect of transferring property to any person other than a United States person.
(d) Cross references
 
(1) For rules relating to recognition of gain or loss where an exchange is not solely in kind, see subsections (b) and (c) of section 1031.
(2) For rules relating to the basis of property acquired in an exchange described in subsection (a), see subsection (d) of section 1031.  §1035 on Cornell Website

Learn more about 1035 Exchanges involving annuities — Life Health Pro 4.18.008

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American Assoc for Long Term Care on 1035 Exchanges

IRS Bulletin  2011-68 ♦ 2003-51 

 

Using Annuities to pay for Long Term Care –
– Special Features

Tax Free nature of Long Term Care.  IRC §104 (a) (3)

Some annuities have a feature to pay for Long Term Care…  For example the FG Retirement Pro – see excerpt below.

How do Hybrid Life Insurance with LTC Benefits vs
Linked Lump Sum Premium Long Term Care
 policies work & compare?

Hybrid   – Life Insurance with Long Term Care Benefits

Genworth Total Living Coverage Brochure 20 pages Rev 11.2013

Lincoln Financial – Money Guard Reserve Plus ♦ Illustration    This universal life insurance with an optional long-term care benefit rider1 gives you a choice of premium payment options of 1 through 10 years.

Unlike traditional long-term care insurance, your policy costs are set at issue and will never increase. Your policy provides benefits — even if you never need care, provided all planned premiums are paid.

See brochures in the right hand column

State life – Sample Illustration

Linked  –

By paying an initial lump sum premium, you immediately create a death benefit for your beneficiaries and a pool of money to pay for covered long term care needs.

 

You’ve got benefits

  1. If you need long-term care
    You get more for your money because your policy provides income tax-free reimbursements for qualified long-term care expenses worth more than your premium payments. 1 There’s no deductible or waiting period, which could make a real difference in your total out-of-pocket costs for qualified long-term care expenses.
  2. If you don’t need long-term care
    Your policy provides an income tax-free death benefit. Your children, or other loved ones, designated as beneficiaries, will receive a legacy. 2 The death benefit would be reduced by any loans, withdrawals and benefits paid.
  3. If you change your mind
    You have options. You may choose to:
  • Maximize your long-term care benefits — A return of 80% of your paid premiums is available once all planned premiums are paid. 3

— OR —

  • Maximize your return of premium — 100% of return of premium is available after year 5 provided all planned premiums are paid; additional cost applies. 3  Lincoln Website

We are happy to help you.  There is no additional charge for our services.  We are paid by the Insurance Company.  Click on button above or below to get quotes and proposals. 

IRC 7702 b (Definition of Long Term Care – Benefits not taxable)  vs 101 g  (life proceeds not taxable income) accelerated death benefit rider

NAIC Model Regulation 620 (MDL-620) 22 page pdf This model regulates accelerated benefit provisions of individual and group life insurance policies and provides required standards of disclosure. It applies to all accelerated benefits provisions not subject to the Long-Term Care Insurance Model Act (MDL-640).

Immediate Need Annuity
Guaranteed LIFETIME income
Long Term Care alternative

An Income Assurance Immediate Need Annuity guarantees monthly income that cannot be outlived and can be used for any purpose, including paying for care in any setting. It is designed for those with adverse health conditions whose age/health may preclude them from long term care insurance coverage options.

You cannot be turned down due to your health and there are no claims to file, nor on-going health assessments.

GUARANTEED SOURCE OF MONTHLY INCOME TO USE FOR ANY PURPOSE INCLUDING:

• Living expenses
• Medical expenses
• Cost of long term care

This medically underwritten product is designed to provide higher monthly income for the same premium than a traditional single premium immediate annuity, particularly for individuals who are less healthy and need care.

Asset Care Solutions   Alternate option to pay premium rather than transfer assets – under 1035 

Asset Care Solutions

 

State Life Asset Care Brochure

State Life Asset Care Brochure

 

 

Guaranteed Income

Guaranteed Annuity Income

Ultra Income

United of Omaha  Ultra Income  Single Premium Immediate Annuity

Pros & Cons of Single Premium Immediate Annuity – Video

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