1035 Exchange of Non-Qualified Annuities
1035 Exchange takes place were the annuitant is the owner. After contract has been issued the ownership has now changed to a son in this situation. Mother is annuitant now and son is owner. When this change occurs insurance company does not send a 1099-R to the IRS. From a technical standpoint this looks like a gift and form 709 Gift Tax return should be filed by the mother as the original owner. The question is because no 1099-R was reported to IRS and no Gift Tax Form was filed by the mother as gifting the asset away does this cause a taxable distribution at the time of the gift to the son? When mother dies the contract now shows the son as annuitant and owner and only when the contract is surrenderd by him does then that cause the taxable event? Any help would be appreciated.
Permalink Submitted by mk foss on Wed, 2013-05-01 18:40
This is a very unusual fact pattern. Normally Form 1099-R is sent with a 1035 Exchange. Also the transfer by gift of a nonqualified annuity should trigger all of the increased value since purchase as ordinary income unles its a very old (pre-’87) annuity. I don’t understand why no Form 1099-R was issued to report the transaction.
Permalink Submitted by Frank Amato on Wed, 2013-05-01 19:48
The company that changed the ownership of the contract to the child did not send Form 1099-R. If you make a gift and the annuitant files a Form 709 Gift Tax Form their should not be any tax until the new owner surrenders the contract. The current annuitant the mother, can use up her 5.2 million exemption for anythiung over the $14,000 annual gift exclusion. Am I correct with that statement?
Permalink Submitted by Frank Amato on Tue, 2013-05-07 18:46
Can someone answer my question listed above.
Permalink Submitted by Alan - IRA critic on Tue, 2013-05-07 20:20
Was the original annuity purchased prior to 4/23/1987?
Permalink Submitted by Frank Amato on Thu, 2013-05-09 17:16
No the contractwas purchased after that date.