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DEPARTMENT OF INSURANCECOMMUNICATIONS OFFICE
Wednesday, December 05, 2007
Insurance Department Alerts Seniors to Predatory Annuities Sales Practices
Reports of deceptive conduct being used by some agents to sell products
COLUMBUS - Due to an increase in predatory sales practices associated with the sale of annuities, the Ohio Department of Insurance is alerting seniors about how to avoid becoming a victim, Insurance Director Mary Jo Hudson announced.
The Department has recently received information that some agents are "churning" business by encouraging their senior clients to replace an old annuity product with a new annuity product that allegedly offers a higher rate of return. In many cases, the replacement is unnecessary and the senior citizen could face high surrender charges and fees if they need to withdraw money from the annuity. Since there are substantial commission rates associated with the sale of annuity products, some agents may recommend an unsuitable product to a senior for their own personal gain.
"Ohioans need to carefully review any insurance product they are considering and consult a trusted advisor or the Ohio Department of Insurance at 1-800-686-1526 with any questions," Director Mary Jo Hudson said. "We are closely watching the marketplace to assure Ohio-licensed insurance agents are selling suitable annuity products to seniors."
Rules that became effective in March 2007 give the Department more regulatory authority and oversight over the sale of annuity products. Not only were suitability standards put in place, the new rules clearly provide Ohio-licensed insurance companies and agents with an outline of what is considered appropriate annuity sales conduct.
Under the new guidelines:
Consumers may be deceived in many ways. While anyone can be a victim, seniors remain a prime target.
To avoid being a victim of a predatory sales practice, consumers should be weary of:
Abstract
Employees of institutions of higher education are entitled to voluntarily contribute to a tax deferred annuity (TDA). Congress created this tax shelter to encourage and assist university faculty to supplement their retirement income. The TDA has been available for over 20 years, and this study measures its use by a large random sample of currently employed faculty of the State of Ohio. A major finding is that only one-half the sample participates in the TDA program. The study provides statistics on the demographic characteristics of participants and nonparticipants.
January 2008
What is the estate tax value of future state lottery payments? One might think it would be the present value the state used in calculating a lump sum payout. The IRS, however, relying upon the actuarial tables prescribed by IRC ยง 7520, came up with a higher number in an Ohio case. Several courts have addressed the reasonableness of the tables and reached conflicting conclusions. Recently, a district court in the Ohio case joined those allowing an alternative method.
Carol Negron was the executrix of two estates whose decedents had won the Ohio Super Lotto jackpot prize. Both winners died in 2001 after receiving 11 of 26 annual payments of $256,410 each. Each estate elected to receive a lump-sum distribution of the remaining 15 payments for $2.27 million. The IRS determined values from the tables of $2.66 million for one decedent and $2.77 million for the other. But Negron contended the tables do not reflect a discount appropriate to Ohio lottery proceeds' being nontransferable and therefore not marketable. The government argued the tables do include such a discount.
The Ninth Circuit in Shackleford , 88 AFTR2d 2001-5658, has upheld a departure from the tables, as has the Second Circuit, overruling the Tax Court in Gribauskas , 92 AFTR2d 2003-5914. The Fifth Circuit, on the other hand, has concluded that lottery annuity payments are properly valued by the tables (Cook, 92 AFTR2d 2003-7027), as have district courts in Massachusetts, (Donovan, 95 AFTR2d 2005-2131), Louisiana (Anthony , 95 AFTR2d 2005-2905) and elsewhere.
Although the Fifth Circuit ruled against the taxpayer in Cook , the Ohio district court drew from that opinion a two-part test based on principles already well-established by 1962 (Weller , 38 TC 790): Estates may propose an alternative valuation when (1) the value ascribed by the tables is unrealistic and unreasonable, and (2) a more reasonable and realistic means by which to determine a fair market value is available. Negron, the Ohio court said, had satisfied the first prong of the test, and it gave her an opportunity to demonstrate the second.
Ohio Life Insurance Shopping Tips:
Life insurance provides money typically to beneficiaries after a loved-one who has life insurance dies. Coverage is often provided by employers but can also be purchased separately through an insurance agent. The Ohio Department of Insurance urges consumers to regularly review their need to secure life insurance as part of their financial and estate planning.
Life Insurance Can Help:
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