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Old 08-03-2017, 10:22 AM   #11
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VolAgent on Process of 1035 Exchange
 
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Process of 1035 Exchange Re: Process of 1035 Exchange
Originally Posted by eersfan View Post
How familiar are you with a Modified Endowment Contract, given that you are doing a single-premium life policy?
Not necessarily. If the 1035 is properly handled it will bring over the cost basis from the existing policy. It may still be a MEC in the end, but we shouldn't automatically assume so.

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Old 08-03-2017, 10:43 AM   #12
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Process of 1035 Exchange Re: Process of 1035 Exchange
Originally Posted by VolAgent View Post
Not necessarily. If the 1035 is properly handled it will bring over the cost basis from the existing policy. It may still be a MEC in the end, but we shouldn't automatically assume so.
Interesting. I never knew that. Good stuff.
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Old 08-03-2017, 11:21 AM   #13
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Process of 1035 Exchange Re: Process of 1035 Exchange
ULs are best for a large 1035 in my experience. You can skip or lower premiums for the first few years to help avoid a MEC. You can also use DB Opt 2 (increasing DB) to help avoid MEC as well. (and then switch to level DB eventually to save on internal costs)

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For most people, the policy being a MEC does not matter one bit. If DB is the only concern, then it doesnt matter.

Even if CV is a major goal, many people buy MECs that are single premium policies. Its essentially just an annuity on steroids.
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Old 08-03-2017, 03:22 PM   #14
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Process of 1035 Exchange Re: Process of 1035 Exchange
Except gains are taxed on a LIFO basis and subject to penalty if taken out prior to age 59.5. I can't imagine why anyone would intentionally purchase a contract that is a MEC if they were going to take withdrawals. Years ago, a MEC was a great estate planning tool...when the limit was much lower.

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All single-premium life contracts are a MEC.
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Old 08-03-2017, 04:31 PM   #15
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Process of 1035 Exchange Re: Process of 1035 Exchange
Originally Posted by eersfan View Post
Except gains are taxed on a LIFO basis and subject to penalty if taken out prior to age 59.5.
Thats no different than an Annuity. Which is why I said its just an Annuity on steroids. (technically an annuity is a form of life insurance... but I digress)

Originally Posted by eersfan View Post
I can't imagine why anyone would intentionally purchase a contract that is a MEC if they were going to take withdrawals. Years ago, a MEC was a great estate planning tool...when the limit was much lower.
It is still an excellent estate planning tool. (estate taxes have nothing to do with this btw)

A single premium MEC will outperform a traditionally funded policy. That is one major reason why they buy it over a non-MEC.

There are options that provide very high liquidity. So it acts like a liquid annuity that has an enhanced Death Benefit.

Plus, Indexed Life has much higher Caps than an Indexed Annuity does. So if a person can pass UW, its a no brainer choosing between the two options.

I will make more this year off of single premium policies than I will any other type. Those in the 55-65 range love it.
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Old 08-03-2017, 06:26 PM   #16
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Process of 1035 Exchange Re: Process of 1035 Exchange americansenior is the thread starter for: Process of 1035 Exchange

Originally Posted by NewbieNewbie View Post
But a 10 year old policy with a 25k cash value and a 25k benefit. Am I missing something here? I may be.
As mentioned above, the policy is OVER 10 years old. I just couldn't remember exactly how long he said he's had it.
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Old 08-03-2017, 06:35 PM   #17
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Process of 1035 Exchange Re: Process of 1035 Exchange
Originally Posted by americansenior View Post
As mentioned above, the policy is OVER 10 years old. I just couldn't remember exactly how long he said he's had it.
Wouldn't matter if it's 20 years old. A foresters 25K whole life is not going to have $25K cash value.

And if it's foresters PlanRight it can't even be 10 years old.
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Old 08-04-2017, 10:36 AM   #18
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Process of 1035 Exchange Re: Process of 1035 Exchange
Originally Posted by americansenior View Post
I am doing my first 1035 exchange and wanted to get an idea on how the process works. I have a client that has a foresters whole life 25k with 25k in cash value. He has had it for over 10 years so I believe we would be using the cash value instead of cash surrender value? I'm not familiar with how the process works and trying to get some more info. Also I am going to be using the cash value for a single premium for 39k death benefit. Any help is appreciated. Thank you
Since this is your first time to 1035 something, let me forewarn you about something that may or may not happen. I just don't want you to be blind-sided when/if it happens.

Company A, who has the money now, doesn't want to give it up. Some companies will do whatever it takes to delay the transaction. Everything from, "We didn't get the form", to "Oh no, you have to use 'our' form." I've seen everything from, "No, you faxed the form, but we need you to mail it to us" to "No, we have to have the original signature and this is just a copy".

It's all BS as we know, but just don't get frustrated if this starts happening.

On the good side; many times it goes through without a hitch.

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Old 08-08-2017, 08:26 AM   #19
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Process of 1035 Exchange Re: Process of 1035 Exchange
Where's the update on this? How did it go once it was learned that there was not $25K cash value?
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Old 08-08-2017, 10:56 AM   #20
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Process of 1035 Exchange Re: Process of 1035 Exchange
Originally Posted by Todd King View Post
Since this is your first time to 1035 something, let me forewarn you about something that may or may not happen. I just don't want you to be blind-sided when/if it happens.

Company A, who has the money now, doesn't want to give it up. Some companies will do whatever it takes to delay the transaction. Everything from, "We didn't get the form", to "Oh no, you have to use 'our' form." I've seen everything from, "No, you faxed the form, but we need you to mail it to us" to "No, we have to have the original signature and this is just a copy".

It's all BS as we know, but just don't get frustrated if this starts happening.

On the good side; many times it goes through without a hitch.
Truth. Sometimes it can be tough, other times very easy.

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Originally Posted by jdeasy View Post
Where's the update on this? How did it go once it was learned that there was not $25K cash value?
I'd be interested to know what the REAL specifics were as well, assuming the OP dug into it and proceeded with the 1035.
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