William Byrnes' Tax, Wealth, and Risk Intelligence

Why is this Topic Important to Wealth Managers? Section 1035 exchanges are known for deferral of a taxable gain through a step-up in basis into a new contract.  The tax benefits granted by Congress are certainly advantageous, however, in an uncertain economy Section1035 exchanges also offer wealth managers the opportunity for new business.  Because of the potential little to no out-of-pocket expense associated with these transactions, many wealth mangers are currently implementing this advantageous exchange during sluggish times. 

It is often the case that policy owners’ expectations change during the life of a contract.  It makes sense to re-evaluate objectives to ensure they’re still aligned with client goals.  Section 1035 exchanges are one area where this practice is commonplace.

Generally, Congress allows owners of life insurance and annuity contracts to exchange that contract for another, similar or related insurance or annuity contract without recognizing any unrealized gain which may have accrued within the policy, so long as the insured stays the same.

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