Avoiding Common Annuity Mistakes

Report
Avoiding Common
Annuity Mistakes
Brought to you by the
Nationwide® Advanced Consulting Group
NFM-8802AO.2 (5/13)
For Client Use
Some things you need to know
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The following information was created to support the general promotion of
life insurance, annuities, and/or other products and services from
Nationwide Life Insurance Company, which are described within. Neither
Nationwide nor any of its employees provide tax or legal advice. For
answers to your specific questions, you should consult with your legal and
tax advisors to see how the information may apply to your personal
situation. This information is not intended to be used — and cannot be
used — to avoid penalties under the Internal Revenue Code.
As your personal situations change (i.e., marriage, birth of a child or job
promotion), so will your life insurance needs. Care should be taken to
ensure these strategies and products are suitable for long-term life
insurance needs. You should weigh your objectives, time horizon and
risk tolerance as well as any associated costs before investing. Also, be
aware that market volatility can lead to the possibility of the need for
additional premium in the policy. Variable life insurance has fees and
charges associated with it that include costs of insurance that vary with
such characteristics of the insured as gender, health and age, underlying
fund charges and expenses, and additional charges for riders that
customize a policy to fit your individual needs.
NFM-8802AO.2 (5/13)
For Client Use
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Some things you need to know
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This information assumes that the life insurance is not a modified
endowment contract, or MEC. As long as the contract meets the nonMEC definitions of IRC Section 7702A, most distributions are taxed on a
first-in/first-out basis. Surrender charges may apply to partial surrenders.
Loans and partial surrenders from a MEC will generally be taxable, and if
taken prior to age 59 ½, may be subject to a 10% tax penalty. Loans and
partial surrenders will reduce the cash value and the death benefits
payable to your beneficiaries, and withdrawals above the available free
amount will incur surrender charges. If your contract were to lapse with a
loan outstanding, the loan amount in excess of basis will be treated as a
distribution and all or a portion will be subject to income tax.
Investing involves risk, including possible loss of principal.
Variable products are sold by prospectus. Both the product
prospectus and underlying fund prospectuses can be obtained from
your investment professional or by visiting us at
www.nationwide.com or calling 1-877-669-6877. Before investing,
carefully consider the fund's investment objectives, risks, charges
and expenses. The product prospectus and underlying fund
prospectus contain this and other important information. Read the
prospectuses carefully before investing.
NFM-8802AO.2 (5/13)
For Client Use
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Some things you need to know
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All guarantees and protections are subject to the claims-paying ability of
Nationwide Life Insurance Company, and do not apply to variable
underlying investment options.
Nationwide and its representatives do not provide tax, accounting, or
legal advice. It is your responsibility as a Registered Representative of
you affiliated broker/dealer to determine suitability of any product, rider,
service, or strategy you introduce to a customer.
Before investing, understand that annuities and/or life insurance
products are not insured by the FDIC, NCUSIF, or any other
Federal government agency, and are not deposits or obligations
of, guaranteed by, or insured by the depository institution where
offered or any of its affiliates. Annuities and/or life insurance
products that involve investment risk may lose value.
© 2013, Nationwide Financial Services, Inc. All rights reserved.
• Not a deposit • Not FDIC or NCUSIF insured
• Not guaranteed by the institution
• Not insured by any federal government agency • May
lose value
NFM-8802AO.2 (5/13)
For Client Use
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Agenda
• Contract Structure
• Beneficiary Designations
• Annuitant
• Ownership
NFM-8802AO.2 (5/13)
For Client Use
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Annuity Contract
Mistake # 1
They are all the same
How to Avoid:
Read and understand the annuity contract!
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Annuity Contract –
Death of Owner
Mistake # 2
Not Understanding the Difference
Between Annuitant and Owner Driven
How to Avoid:
Owner and Annuitant are the same
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For Client Use
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Contract Structure –
Death of Annuitant
Mistake # 3
Gift from Owner to Beneficiary
How to Avoid
• Keep Owner & Annuitant Same
• Understand Contract
NFM-8802AO.2 (5/13)
For Client Use
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Sample Contract Structure
Owner – Husband or Wife
Annuitant - Same as the Owner
Beneficiary – Spouse, Children or Trust
NFM-8802AO.2 (5/13)
For Client Use
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Beneficiary – The Estate
Mistake # 4
No Beneficiary or Naming the Estate as
Beneficiary
How to Avoid:
• Name specific people as beneficiaries or,
when appropriate, a trust
• Spousal Continuation
• Keep Beneficiaries up-to-date
NFM-8802AO.2 (5/13)
For Client Use
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Beneficiary - Contingent
Mistake # 5
No Contingent Beneficiary
How to Avoid:
Name a Contingent Beneficiary
NFM-8802AO.2 (5/13)
For Client Use
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Sample Beneficiary
Arrangement
Primary Beneficiary – Spouse
Contingent – Children or Trust
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Beneficiary - Minor
Mistake # 6
Naming a Minor as a Beneficiary
How to Avoid:
• Name a Trust for the Minor’s Share
• If Appropriate, UTMA
NFM-8802AO.2 (5/13)
For Client Use
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Ownership – Joint Owners
Mistake # 7
Multiple Owners – Confusion with Joint
Ownership with Rights of Survivorship
How to Avoid:
One Owner
NFM-8802AO.2 (5/13)
For Client Use
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Ownership – Non-Natural
Owners
Mistake # 8
Loss of Tax-Deferral Because a
Business is the Owner
How to Avoid:
Don’t Name a Business as Owner
NFM-8802AO.2 (5/13)
For Client Use
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Ownership – Revocable Trusts
Mistake # 9
Making the Revocable Living Trust the
Owner when it is Unnecessary
How to Avoid:
Leave Ownership in the Individual’s
Name to Keep it Simple
NFM-8802AO.2 (5/13)
For Client Use
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Ownership – Irrevocable Trusts
Mistake # 10
Not Understanding the Type of Trust Being
Named as Owner
How to Avoid:
1. Have Client Seek Competent Legal
Counsel for Direction
2. Understand Type of Trust and
Consequences
NFM-8802AO.2 (5/13)
For Client Use
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Ownership – Changing Owners
Mistake # 11
Taxes when Changing Ownership
How to Avoid:
• Don’t Change Ownership
NFM-8802AO.2 (5/13)
For Client Use
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Ownership – Assignments
Mistake # 12
Taxes when Assigning Ownership
How to Avoid:
Don’t Assign; Use Other Collateral
NFM-8802AO.2 (5/13)
For Client Use
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Ownership – Charitable Gifts
Mistake # 13
Unintended Tax Consequences from Gift
to Charity
How to Avoid:
Name Charity as Beneficiary
NFM-8802AO.2 (5/13)
For Client Use
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Ownership – Surrender Charges
Mistake # 14
Incurring CDSC or Surrender Charges
How to Avoid:
Consider the Costs of Surrendering
NFM-8802AO.2 (5/13)
For Client Use
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Ownership – Issue Date & Taxes
Mistake # 15
Not Paying Attention to the Issue Date &
Combining Annuities
How to Avoid:
Know When the Annuity is Issued
NFM-8802AO.2 (5/13)
For Client Use
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Ownership – Owning More Than One
Mistake # 16
Selling Two Annuities to the Same
Person in the Same Tax Year From the
Same Insurance Company
How to Avoid:
Different Owners, Different Tax Years,
Different Insurance Companies
NFM-8802AO.2 (5/13)
For Client Use
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Ownership – 10% Penalty
Mistake # 17
Annuitizing a Deferred Annuity or doing a
1035 Exchange to an Immediate Annuity
before age 59 1/5
How to Avoid:
Remember the Exceptions to the 10%
Premature Distribution Penalty
NFM-8802AO.2 (5/13)
For Client Use
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Ownership – Surrender or 1035
Mistake # 18
Not Knowing When to Surrender or to
1035
How to Avoid:
Consider the Tax Consequences
1035 Exchange to Save Basis
NFM-8802AO.2 (5/13)
For Client Use
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Ownership – Surrender or 1035
Mistake # 19
Buying a New Annuity to Soon After
Surrendering an Annuity
How to Avoid:
Consider the Tax Consequences
and the “Wash Sale” Rules
NFM-8802AO.2 (5/13)
For Client Use
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Ownership – Partial Exchanges
Mistake # 20
Unintended Tax Consequences From
Partial Exchanges and Withdrawals
How to Avoid:
Don’t Withdrawal for a 180 Days After the
Exchange
NFM-8802AO.2 (5/13)
For Client Use
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Ownership – Partial Exchanges
Contract A
Deferred Annuity
Basis & Gain are
Prorated Between A & B
Partial Exchange to Contract B
May a withdrawal be taken from
contract A within 180 days of
the exchange without negative
tax consequences? NO!
Contract B
NFM-8802AO.2 (5/13)
For Client Use
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Ownership – 1035
Mistake # 21
Loss of Benefits & Guarantees
How to Avoid:
Read the Existing Annuity Contract
Compare Benefits & Guarantees
NFM-8802AO.2 (5/13)
For Client Use
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Ownership – 1035
Compare Features and Benefits
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Guaranteed Interest Rates
Death Benefit
Guaranteed Income Benefit
CDSC or Surrender Charges
Annuitization Payout Rates
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Summary
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Read the Contract or Prospectus
Coordinate With Client’s Other Planning
Understand Tax Consequences
Understand Benefits & Features of
Current and Proposed Annuity
• Whenever Possible, Keep It Simple
• Ask for Help
NFM-8802AO.2 (5/13)
For Client Use
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Questions?
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Independent Dealer:
Financial Institutions:
Wirehouse/Regionals:
Nationwide Agents:
Nationwide Financial
Network:
BGA:
NFM-8802AO.2 (5/13)
For Client Use
1-800-321-6064
1-800-893-5399
1-800-720-1511
1-888-333-4202
1-877-223-0795
1-888-767-7373
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