Consider this scenario – an individual holds a traditional deferred annuity (fixed, index, or variable) with an account value of $400,000 and a basis of $200,000.
If withdrawals are made from this annuity from this annuity (LTC expenses included), the $200,000 of gain will be taxed first as ordinary income.
If, however, the annuity was exchanged under IRC section 1035 into a LTC-annuity such as Annuity Care, withdrawals from the annuity for LTC expenses will be tax-free.
The LTC-annuity will continue to grow at the current accumulation rate for the annuity, distributions for non-LTC needs are possible, and the annuity value at death will transfer to a designated beneficiary if it is not fully consumed by LTC expenses.
Additional value can be found by including the Continuation of Benefit Rider which can double, triple, or create an unlimited stream of benefits.
A spouse can also be added as an “eligible person” creating an even broader protection plan for a couple.
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