New “imbedded” benefit plans providing coverage for Long Term Care expenses are now available on specially designed Annuity products. With recent tax law changes, distributions taken from those plans to pay for Long Term Care expenses are received income tax free!

……FOR LEVERAGE AND TAX-EFFICIENCY

Non-Qualified Annuities can be an excellent tax deferred vehicle to provide income later-in-life. The problem with the Tax Deferred Annuity growth is that deferred taxes are due- and payable- regardless of why the withdrawals are made.

A new tax law that became effective in 2010 allows for the combination of annuities with Long Term Care insurance coverage with significant tax advantages. With the new products developed to take advantage of this opportunity 1- the annuity balance, depending on the plan, is doubled or tripled (2X to 3X premium) for Long Term Care use, and, 2- any distributions used to pay for Long Term Care needs are received income tax free.

Case Study

Jane is a healthy 70-year-old widow who recently retired. She has a nice pension, a couple of CD’s, a modest investment portfolio and a Non-Qualified Deferred Annuity (Annuity) with a value of $250,000.

She bought the Annuity 20 years ago with the intention to use it to supplement her retirement income; she now feels blessed knowing that she doesn’t really need additional income.

As she heads into retirement, she’s concerned about reports that show an estimated 70% of people over age 65 will require some form of long-term care services during their lifetime. While paying premiums for Long-Term Care Insurance isn’t out of the question, she doesn’t like the idea of paying premiums for something she may never use; so now she plans to use the Annuity to pay for Care should she ever need Care.

Jane meets with her Financial Advisor and he listens to her concerns and ideas. He shares with her that annuity distributions, even those made to pay for Long Term Care, will be taxable as gains over basis (and he reminds her that she bought the Deferred Annuity 20 years ago and has significant gains in the contract). He goes on to tell her that the Pension Protection Act of 2006, that went into effect in 2010, allows for income tax-free withdrawals from specially designed non-qualified annuities when the withdrawals are used to pay for Care expenses. He’s used this type of product with other clients and suggests that she might want to consider it too.

He then shows her how, via a Partial 1035 Exchange of $100,000 of her $250,000 Annuity into one of these specially designed products, the results would be as follows:

• Via the LEVERAGE provided by the insurance, Jane creates a $255,208 benefit to pay for Long Term Care expenses for 60 months (up to $4,253 per month),
• she’s created significant tax efficiency to pay for Care, while
• freeing up $150,000 to spend as she pleases.

ANNUITY UPGRADE
A MOVE FROM TAX-DEFERRED TO TAX-EFFICIENT

For Producer educational use only; not for use with the public.