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Oct 27, 2017 by |

Santa Clara County Financial Elder Abuse and Annuity Attorney: Annuity Replacements


Surrender Charges and Taxes

Full or Partial Surrenders

Whenever an insurance agent pitches a replacement of your existing annuity, think surrender charges and tax consequences. Surrender charges may be imposed on partial or full surrenders for up to ten years and beyond during the life of a policy. As for taxes, while we here at Evans Law Firm Inc. are not tax attorneys we see policy surrenders and/or replacements every day and the tax bills that may come to policyholders as a result of those transactions.  The results of a replacement can be disastrous financially.  Always discuss any policy change, partial or full surrender, or replacement with your tax expert.  If you have already suffered a tax loss or surrender penalty on a surrender and/or replacement, call Evans Law Firm today at 415-441-8669 and we can help.  You may been the victim of fraud or financial elder abuse.  We represent clients in the State of California.

The Tax Implications

Appreciation in deferred annuities is not recognized for tax purposes until you surrender a policy or begin to receive distributions. On a surrender or distribution, the amount you receive may be taxed as ordinary income.  While the gains in your policy accrue tax free as long as the policy is in force and no withdrawals are made, at surrender those gains may be taxed at ordinary income rates.  If your surrender is part of an exchange for a like kind policy it may qualify as a tax-free exchange, known as a “1035 exchange.”  But be extremely careful here and make sure you and your tax preparer go over the proposal beforehand.  Then if you’re still determined to go forward, you and your preparer should track any 1035 exchange from start to finish.  The IRS has very stringent rules governing these exchanges and the slightest mistake or oversight (by you or the agent) makes the distribution from the existing policy taxable at ordinary rates. 

Bottom Line

There are other pitfalls beyond tax problems. Replacing existing policies is also known as “churning” those policies.  This is just like a stock broker who churns client accounts – repeatedly buying and selling shares for commissions. Some insurance agents churn clients’ policies the same way even though the churn makes no economic sense. We at Evans Law Firm see incidents of this every day.  We also see cases where agents deliberately ignore tax rules and consequences altogether and conceal your churn (known as a concealed replacement) in the interest of a big sales commission. Always consult a professional/third party when considering a policy replacement, and always run any policy surrender, exchange, sale, or replacement past your tax advisor before signing anything.

Contact Us

If you or a loved one has suffered a tax, surrender penalty, or other loss on a whole life insurance policy or annuity in Santa Clara County, or in any California county, contact the Evans Law Firm life insurance and annuity attorneys at (415) 441-8669, or by email at <a href=””></a>. Our attorneys have experience with complex financial contracts and large insurance companies. We can help guide your case through a FINRA arbitration, jury trial or toward an equitable settlement.  We also handle cases involving physical and financial elder abuse, qui tam and whistleblower law, nursing home abuse, whole life insurance and universal life insurance, and indexed, variable, and fixed annuities.

Some of the leading providers of annuities in California are:

AXA Equitable Life Insurance

Bankers Life Insurance and Casualty company

EquiTrust Life Insurance Company

Fidelity & Guaranty Life Insurance Company

Forethought Life Insurance Company

Genworth Life Insurance Company

ING USA Annuity and Life Insurance Company

John Hancock Life Insurance Company

Lincoln Benefit Life Company

Massachusetts Mutual Life Insurance Company

Metlife/Metropolitan Life Insurance Company

Pacific Life Insurance Company

Prudential Life Insurance Company

Transamerica Life Insurance Company

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