The American Association for Long-Term Care Insurance has begun a national campaign to increase awareness of how to effectively use 1035 exchanges for tax advantaged long-term care planning. The 1035 exchange allows annuity contracts and life insurance policies to be converted into policies that offer long-term care benefits.
A new guide from the association highlights the tax advantages of annuities that qualify for the exchange and offers a breakdown of 1035 exchange basics, as well as comparisons of traditional life insurance with policies that combine life insurance and long-term-care benefits. The guide also includes an overview of the Pension Protection Act (PPA).
"Section 1035 exchanges are one of the least-known planning strategies," says Jesse Slome, the association’s executive director. "Every insurance agent and financial professional who has prospects or clients in their 50s, 60s and 70s are going to need to familiarize themselves with 1035s."
Section 1035 of the tax code states that an annuity or life insurance policy can be exchanged without incurring any taxes at the time of the exchange. For those struggling with the issue, financial advisors can help navigate qualifying products and help clients complete the transaction without tax penalty. (See the Financial Advisor story, “How To Pay For Long-Term Care.”)
"Americans have $2.8 trillion in fixed and variable annuities and we know far too few older adults have a financial strategy to deal with the real risk of needing long-term care," Slome reports. "Many of these individuals could benefit by taking advantage of a 1035 exchange, repurposing an existing annuity into one that continues to accrue but also can provide.”
A free copy of the 1035 exchange guide can be found here.