1035 to 3rd company?
I am wondering if some of you can comment about this. I am an insurance agent helping a lady client and I have a question about a 1035 exchange. History: Client owned Annuity A for six years; at the end of six years, her previous agent attempted to sell her Annuity B with another company by doing a 1035 exchange. Annuity B was issued, but during the free look, my client decided she did not like Annuity B, and instead wanted to buy Annuity C with a third company. Company B said they will send back the funds to Company A, but Company A will not accept the funds back. Company B will not send the funds to Company C, and states that the only options the client has are:
1. Take possession of the funds herself (taxes on the gain will be due) in order to buy Annuity C
2. Accept Annuity B, which she decided she does not want, and be stuck with it
I have heard conflicting information about this. Someone told me that Company B’s decision not to send the funds on to company C is due to their own interpretation of the 1035 rules, and not the rules themselves, and that some companies will indeed send the funds on to a third company if the client does not accept the annuity. Can anyone help me on this?
Permalink Submitted by Alan - IRA critic on Mon, 2014-05-05 19:51
The Co C options are probably correct with choice 2 being the best if there are appreciable gains on the contract, and I would not second guess a major insurance company that deals with this type of issue in the course of their business. But even if there were an interpretation of Sec 1035 under which this might be done, if the company does not want to forward the funds to a new carrier, they don’t have to even if some documentation could be provided to them to support incorporating a third carrier into the picture.