Annuity Law Facts

• Some promoters suggest that U.S. taxpayers may avoid or substantially defer tax on income streams or capital gains by exchanging property for an unsecured private annuity.  In another abusive scheme an offshore private annuity is used in conjunction with an offshore variable life insurance policy as a devise to "decontrol" a foreign corporation or other entity used in an abusive sequence of transactions.  As a result the promoter claims that the foreign corporation or entity is owned by the insurance policy and is not a, controlled foreign corporation, foreign personal holding company, passive foreign investment company, or any entity controlled by a U.S. person whose income could be taxed in the United States to its owner. 

• Exchange of a portion of annuity contract. An exchange of a portion of an annuity contract into a new annuity contract is treated as a tax-free exchange under section 1035 of the Code. Investment in the contract and basis are allocated according to cash value immediately prior to the exchange using the rules of sections 72 and 1031.

• A life annuity is an insurance product that pays out a periodic amount for as long as the annuitant is alive, in exchange for a premium.

• Should an older adult purchase an annuity? The answer depends on the person's financial, health and personal situation and goals. For some, an annuity can be an appropriate part of an overall financial plan. For others, an annuity can be totally unsuitable.

• Some lender-insured plans include an annuity that continues making monthly payments to you even if you sell your home and move. The security of these payments depends on the financial strength of the company providing them, so be sure to check the financial ratings of that company. Annuity payments may be taxable and affect your eligibility for Supplemental Security Income and Medicaid. These "reverse annuity mortgages" may also include additional charges based on increases in the value of your home during the term of your loan.

• Most Fixed annuities pay a set guaranteed return over a number of years, usually based on the current prime interest rates. Some pay an initial higher bonus rate for the first year.

• Variable Annuities allow the investment in stocks, bonds, funds and money markets. There are times when these are appropriate investment vehicles, but since your principle is at risk; variable annuities may not be the first choice when considering LTC protection

• Annuities are designed to be safe, long term investments that guarantee to protect your principal. They can be used to generate income or to accumulate tax deferred gains. Like IRA’s the money is not supposed to be used until after age 59 1/2. Most good annuities, however; now have riders which allow the early withdrawal of funds for long term care purposes.

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	Did You Know?
	The NASD Reminds Members of Their Responsibilities Regarding the Sales of Variable Annuities NASD is an independent self-regulatory organization charged with regulating the securities industry, including sellers of variable annuities. The NASD recently issued a release to its members reminding them of their responsibilities to investors in selling variable annuities (NASD Notice 99-35, "The NASD Reminds Members of Their Responsibilities Regarding the Sales of Variable Annuities").