ANNUITY STRUCTURE TELECONFERENCE

OK.  So what we want to cover today are questions that most people who sell annuities can’t answer, primarily because they’re interested in making the sale, not what happens five, ten, fifteen years later when it’s time for the annuity to pay out, and what the ramifications are.  And those ramifications can be really serious, so our goal today is two things, so that you do the right thing when you’re selling annuities, and two, so that you can help people unravel what somebody else did incorrectly when they sold the annuity to this person.  So that’s, what we’re trying to find is, how do we do it right?  How do we fix what was wrong. 

So let’s go to the second slide.  You just hit your key on your keyboard, page down.  Oh, by the way, on the first page, you’ll notice there was an email address.  If you’d please copy that down:  .  Because I’ll leave some time for questions and answers today, and you’ll email me the questions at.  I’ll read it and then I’ll say the answer so everybody can hear it, so that’ll work pretty smoothly.

Second slide.  There’s no legal advice being given today, so if anything looks like legal advice, please consult an attorney. 

Secondly, everything that I tell you today applies to annuities issued after January 1st of 1986, so if you encounter an annuity issued prior to that, forget almost everything we talk about today, because you’ll need to check the rules.  Rather than give you a presentation where I say, “If it was after ’86, then this, or if it was before ’86, then this,” which would make you crazy.  Let me just tell you what’s going to apply 99% of the time, because rarely do you see annuities older than ’86.  This way, you just know that’ll be the exception, and you’ll go look up the rules and I’ll tell you where to look up the rules before we’re done today.

And third thing, this conversation applies to non-qualified annuities, because qualified annuities, the rules are going to be somewhat different, because (unintelligible) rules come into effect, and other issues.  So this is just about non-qualified annuities.  OK.

So let’s talk about several different issues that we encounter in dealing with annuities all the time.

Third slide.  What are valid conditions for a 1035 exchange?  Basic conditions are that the owner, annuitant and the beneficiary are the same, the maturity date’s the same.  Now, it’s interesting that that’s the stated rule, but in fact, almost all exchanges will qualify between annuities.  IRS, to my knowledge, has never challenged this.  They seem to just turn out a cheek toward this, and not really pay attention to this.  So ‘many to one’, meaning you can exchange eight annuities into one.  You can exchange ‘one to many’, one annuity into two.  You can do partial exchanges, so, you know, half of one annuity, an existing annuity into a new one.  And by the way, just keep in mind, what we’re looking at are IRS rules today and overall conditions.  Any insurance company can have a policy more restrictive than this.  Meaning, just because you heard me say today, “Hey, partial exchanges are OK.”  IRS says they’re OK.  You may try and go move 50% of an annuity from some company, and the company will say, “We’re not doing it.  We don’t do partial exchanges.  If you want to exchange the whole thing, then you’ve got to exchange the whole thing, but we’re not doing a piece.”  So just because the IRS permits it doesn’t mean any insurance company will go along with any of this.  Please keep that in mind, you just have to ask each company you deal with.  And between annuity to annuity…

So, with annuity, it’s very flexible.  Deferred to defer.  Deferred to an immediate.  Fixed to variable.  Variable to fixed.  IRS doesn’t really seem to care that much, OK, and quite frankly, fixed to variable doesn’t really honor the letter of the law, because with variable you get an added feature.  You get a death benefit you don’t really have with the fixed, and so you’re getting an extra benefit which is called the ‘material change’, and if IRS wanted to make an issue about it, they could easily win that, and say, “Hey, fixed to variable – no good.”  But in fact, they’ve never raised the issue. 

Life policy to annuity.  Why would you ever want to do this?  We’ll discuss this for just a couple of minutes so you’ll see this is another opportunity you may have missed.  Because there’s an overlooked tax benefit you may be able to bring to bear for some people, and this will even work with a term insurance policy, what I’m about to show you.  So let’s go to the next slide and see when would you ever do this conversion of a life policy to an annuity. 

Let’s take the worst example, meaning, you meet somebody who’s had a term policy for years and years and years, they’ve put a lot of money into this thing.  And they want to get rid of it.  They say, “Well, I don’t need it anymore.”  And they’ve put $50,000 in premiums into this over the years.  It has a cash value.  Now, you’re saying, “But wait a minute, Larry, term insurance policies don’t have cash value.”  Well, really they do.  The unearned premium, meaning, if it’s a year, they pay the premium for a year, and there’s six months left, the six months remain unearned premium by the insurance company is the cash value.  There’s something there, there’s some value there. 

So, there’s $1,000 cash value.  And, he’s paid a $50,000 in.  If in fact, he stops paying, lets the term policy lapse, what’s happened?  He’s basically poured $50,000 down the drain, gotten no benefit from it, ’cause thank God he hasn’t died, and number two, there’s been no tax benefit whatsoever.  However, he does have a tax basis in that policy.  His tax basis is what he’s invested, the $50,000.  So, you can find somebody like that, or you meet somebody like that.  And you say, “Look, let’s do this.  Rather than just let that policy lapse, let’s take it.  Hopefully your insurance company will let you do this.  Let’s do a 1035 exchange into an annuity, so it’s a life to annuity exchange.  Let’s add some money in there.  You’ve got this $30,000 you said you didn’t know what you want to do with.  You want to put it in some place conservative.  So let’s add $30,000.  You will now have a new annuity for which you’ve invested $30,000, but which has a tax basis of the $30,000 you’ve put in, and the $50,000 of the basis of the life insurance policy you’ve exchanged.  So your basis in this annuity is now $80,000.”  Meaning, he only pays tax on distributions from this annuity above $80,000.  OK?  $80,000 is his tax basis, which will be the return principle.  What have you just done for this person?  You’ve taken $50,000 that they would have otherwise wasted in insurance premiums and gotten no benefit from, and at least turned it into a tax advantage to shelter the first $50,000 that’s earned in this annuity, so that that first $50,000 will not be tax-deferred, it will be tax free. 

So if anybody ever says to you a trick question, “Can you get tax-free income out of an annuity?”, your answer is, “You bet.” And it’s in this situation where, basically, this annuity’s going to earn money, and $50,000 of it’s going to be tax-free. 

OK.  Next slide.  So if you didn’t understand that, you’ll ask me a question at the end, and I’ll see if I can’t even explain it better, although I thought that was kind of straightforward.  Obviously, by the way, you could do that with term, whole life, universal, anything, any type of policy where it may be advantageous for the person to do that.  Particularly where, if they’re surrendering the policy, or they’re letting it lapse, they’re going to have no advantage from all these premiums they’ve paid over the years. 

OK.  So next slide, we are in the slide that says, “Who should be the beneficiary of an annuity?”  This kind of seems obvious, just like, if you’ve studied IRAs, it kind of seems obvious, but when you really start to study it, it becomes more complex.  The spouse is the absolute best choice, if it’s a married couple.  Make the children the contingent beneficiary.  You’ll see why it’s not a good idea to make the children a beneficiary in just a couple of minutes here.

If there’s no spouse, then consider what happens if the contract is annuitant-driven – I’m going to define this in a minute – versus owner-driven.  So, in other words, if you’ve got a single person, you’ll soon be able to figure out what happens under two different scenarios, depending on the type of contract, because you want to think it through ahead of time.  As long as you think it through ahead of time, nobody will ever get messed up later, and nobody will ever give you a new title called ‘defendant’.  You won’t get into trouble, because you’ll have thought this thing through, explained it to your policy-holder, and made the right choices. 

Now, you don’t want to name as a beneficiary a trust.  There are no look-through provisions as they are with IRA beneficiaries.  So let me make sure this is clear.  Because remember something - IRS does not have to be consistent.  OK?  Because IRAs, which we probably deal with a lot more often than distributions and annuities.  We know that, if somebody names a living trust as an IRA beneficial, there’s this look-through provision to who the trust is for to the human being, and that human being can stretch the IRA distributions over the lifetime.  Not so with an annuity.  An annuity is considered a non-natural person.  It has no life expectancy, and a trust will not be able to annuitize the beneficiary payments over its lifetime.  It won’t be able to say, “OK.  Somebody’s died. I’m the beneficiary.  I’m going to now take this over a term of years.”  So that’s why don’t have trusts as beneficiaries.  Not a good idea.  Always name human beings.

OK, next slide.  Who should be the owner and the annuitant of an annuity?  So we talked about beneficiaries.  Who should be the other two parties?  Do everything possible to make the annuitant and the owner the same. Once you do that, life has just gotten very good, very sweet, very simple.  The moment you don’t do that, you’ve opened a Pandora’s box.  I’ll show you the problems that occur when you have the annuitant and the owner as different people.  Avoid it at all costs. 

Now, why do people do it?  Why do you do it to begin with?  Well, you do it when there’s an age limitation for commission reasons.  In other words, you’re working with a company and they say, “Look, we don’t take annuitants past age 70”.  And your client is 75, so you say, “Well, look, you’ll be the owner.  Who in your family is not 70 that we can make the annuitant?” So you’ll do it for those reasons.  Or you’ll do it for a reason where the insurance company says, “Well, the commission rate for a 70-year-old is this.  It’s lower for a 75-year-old.”  So you’ll say, “Well, who can we get that’s younger.”  OK?  So this is why it gets done in the world of selling annuities. 

So, if it does get done, what you need to consider is, what happens if the owner dies first, as opposed to what happens if the annuitant dies first?  And you’ll need to know if the contract is annuitant driven or owner driven.  And I’m about to say something that’s very, very strange.  You can just write it down.  It will be uncovered for you clearly. 

All contracts since 1986 are owner-driven.  And some are also annuitant-driven.  I know that up until this time, it’s very likely people have always, when they’ve talked about this owner versus annuitant driven has spoken of it as it’s either/or.  It’s annuitant or owner driven.  No, no, no.  All contracts since 1986 are owner-driven, and some of those, in addition are annuitant-driven.  You’ll see how that plays out just in a couple of minutes, but give me a chance here.  Also, let me just confuse you for a second, because does IRS have to be consistent?  No.  So here’s a place where they’re inconsistent.  I told you never to make the beneficiary of an annuity a trust, because it’s a non-natural person, it has no life expectancy, it will not be able to annuitize the debt and it won’t be able to take it out over time. 

However, you can have a trust as the owner of an annuity.  And IRS will still say it’s a non-natural person, but there’s an exception.  If the trust is merely an agent for a human being, then we’ll look at the trust just like the person.  What’s the condition that they’ll look at that?  When it’s the owner.  Not when it’s the beneficiary.  So somebody can have their living trust own an annuity, and as far as IRS is concerned, the person, the grantor of the trust, is the owner, even though the title says it’s the living trust.  So trusts can be owners, they should never be beneficiaries.  Because IRS is just inconsistent in the way they treat a trust, depending whether it’s an owner or a beneficiary.  No logic to it.  Makes no sense.  Just the way it is.

OK, next slide.  I want to give you information, and then we’re going to start pulling it all together, and you’re going to see how all this interacts. 

Next slide.  What’s the 59½ Penalty Rule?  So, much like IRAs, if somebody takes distributions from an annuity prior to 59½, there is a 10% penalty on the taxable amounts, and there are some exceptions.  Let me give you the big three.  The others are so minor I didn’t list them here.  There’s another four or five.

The big three:  If somebody is receiving payments received because of death of the holder.  So IRS uses this term, “death of the holder”.  Who’s the holder?  The holder is the owner, or the taxpayer.  The owner.  So the person whose social security number is on that annuity.  So let’s make sure we read this again, because this is going to get a little tricky in here.  There’s no 10% penalty for the person getting distributions received because of death of the holder, the owner.  Or, if the holder is a non-natural person, meaning a corporation.  OK?  Not a person, but an entity, then there wouldn’t be tax on the death of the primary annuitant.  But let’s face it, the annuities you deal with are owned by a human being.  So you have a natural person as the owner.  If they die and the beneficiary starts getting payments, this is one of the exceptions.  There’s no 10% penalty.  But there’s a big catch in here.  If the annuitant dies, and it’s an annuitant driven contract, which we’re going to get to in just a second, and the beneficiaries are less than 59½, they will pay the 10% penalty on the taxable portion of their payments.  And I think very few agents realise that, the beneficiaries can be subject to the 10% penalty, but they can.

Second exception to the 10% penalty: You have somebody who bought an annuity from you at age 50.  At age 56, they say, “Well, I really need the money out of this.  Well, same rule as for IRAs, 72T.  They can take the payments in substantially equal lifetime payments, and there’s three methods to figure that out.  Same as the IRA rules, the amortization method, the annuitization method or the R&D method.  You can calculate how much they can get per year, and they have to continue those payments for the later of age 59½ or five years.  After one of those they can either stop the payments, take more, or do whatever they want, but 72T allows people to get money out of annuities under 59½.  The other exception is immediate annuities.  Somebody 45 years old, it wouldn’t be a wise thing for them to do.  Could buy an immediate annuity.  The payments from that would not be subject to the 59½ penalty, OK?

So those are the big three exceptions.  Most agents will get caught in that first one, not realising that it’s possible for beneficiaries to be subject to that 59½ penalty.

OK.  Next slide.  Some definitions that I promised you, so that we can now get into the nitty-gritty of this, and start combining some of these issues that we’ve touched on so far.  An owner-driven annuity.  Owner has all the legal rights.  They can change the designated annuitant.  Now, when can they change the annuitant?  If the insurance contract permits.  So remember, everything we’re saying here is subject to the policy itself.  The policy can always be more restrictive than what IRS says is OK.  Owner has all legal rights, can change the designated annuitants needed without any negative tax consequences or penalties. Except, potentially, a death of the annuitant.  So, let me address this.  It’s hard to even go through a simple definition with this stuff before there’s exceptions. 

Owner-driven annuity.  You can change the annuitant at any time, IRS says, “That’s OK with us.  Except if the annuitant dies.  Some people say, “Hm.  Changing the annuitant at that time would be a material change, and probably a taxable event.”  Because it’s like doing a 1035 exchange that doesn’t qualify.  It’s not like kind (unintelligible), because the new contract, with the new annuitant, is materially different than the old contract, with the annuitant that died.  So I am not aware that IRS has ever made an issue out of this.  I’m not aware that anybody’s ever made an issue out of this, other than the commentary from knowledgeable people saying, “Look, that’s a material change, and you should be aware, if you change annuitant, a death could give rise to a tax impact.”  OK?

An owner-driven contract pays out only upon the death of the owner.  So all contracts since 1986 are owner-driven, meaning if the owner dies, the annuity pays out.  Some contracts are also annuitant-driven.  What does that mean?  Owners can usually be changed, OK, so the annuitant is the fixed character here.  However, one owner could sell the annuity or gift it to another one.  It is contract-specific as to whether an annuitant can be changed once the contract is issued.  So some annuitant-driven contracts may allow for change in the annuitant.  Also, the contract will pay out upon death of either the owner or the annuitant.  Why does it pay out on either?  Because all contracts are owner-driven.  All contracts will pay out on the death of the owner.  And if it’s an annuitant-driven contract, it will also cease and pay out on the death of the annuitant.

With any type of contract, owner-driven, annuitant-driven, the beneficiaries can always be changed at any time.  So that’s always where you have the flexibility.  But the restrictions on changing owners or annuitants are in the contract.  So you’ve got to read the contract and know it really well before you go making representations, because these are IRS’ rules and definitions, industry definitions, what the contract actually says applies.

Let’s go to the next slide.  So what are the problems when we have an owner and an annuitant that are not the same?  This is where all heck breaks loose.  So I’m going to look at the same set of circumstances, the same people, but under four conditions.  Let’s look at an annuitant-driven annuity where the owner dies first, and then the annuitant dies first.  Then let’s look at it as if it were an owner-driven annuity and the owner dies first or the annuitant dies first.  And you’ll start to see real clearly, this stuff really starts to make a big difference.

Here’s our case.  We’ve got Bob.  Let’s say he’s your client.  Or you meet Bob and he already owns an annuity.  He’s aged 70.  He’ll look at the contract to see how it was written up.  Mary, aged 55 was the annuitant.  Why did the agent do it this way?  Because maybe it was an insurance company who said the commission on this annuity is 6% for somebody who’s under 55,  and that was Mary, and it’s only 4% if you sell it to somebody over 55, so the agent said, “Let’s make Mary the annuitant.”  Because for the same work, the agent gets paid more.  It happens all the time.  And the children are the beneficiary.

OK, next slide.  Let’s take Condition 1.  It’s an owner-driven contract, and Bob, the owner, dies. What happens? Well, since all contracts since ’86 are owner-driven, the annuity terminates and the children must distribute the balance in the annuity within five years, or they can elect to annuitize it, basically take it over their lifetimes.  They can stretch it out.  That election safely has to be made within 60 days.  Now, why do I say safely?  Because there’s an old rule, I think from before 1982, that says the election has to be made within 60 days.   There was a rule later that said, no, you can make your election up until the end of the year of death. But the old rule was never taken away or repealed.  So the conservative option is to just make sure your beneficiaries on the annuities make that election within 60 days.  That way everybody’s covered.  I know that people – somebody passes away, they don’t want to attend to their finances.  I would even suggest you may want to have stickers made up, and when you sell an annuity, put on the front of the sticker, that says, “In the event of death, please contact me within 60 days” - with your phone number on there – “as an important tax election must be made.”  So this way, you’re doing everything you can to make sure it doesn’t slip through and people forget about it. 

But the annuity’s going to terminate.  And of course, the beneficiaries are the children, so the children get it, and what is… Bob’s got nothing, and Mary’s got nothing.  The beneficiaries are the children.  That’s probably not what these people wanted to happen.  There is a good chance that what they wanted to happen was that if Bob died, Mary got it, and Mary continued the annuity.  And most agents think, “Well, wait a minute, Larry, Mary can continue the annuity, because isn’t there a spousal continuation thing, that the wife can just step into the shoes of the owner?”  The answer is ‘Yes’, if the spouse is named as the sole beneficiary.  So Mary, was she named as the beneficiary here?  No.  It was the children.  Mary cannot step in, or Mary cannot continue this contract because she was not named as the beneficiary.  So the better structure would have been, if you had to do it this way, if you had to have the annuitant and the owner are not the same, which is a safe way, Bob would have been the owner, Mary would have been the beneficiary, the kids would have been the contingent beneficiary, just in case Mary died before Bob, and that way, Bob would have died, Mary could have said, Well, I’m just going to hold on to this annuity and see what I want to do with it for the next ten or fifteen or thirty years.  So that would have been a much better outcome. 

Let’s look at condition number two.  Owner-driven annuity, and in this case, the annuitant dies, OK?  So Mary dies.  She’s 55, she passes away.  Bob’s 70.  Bob may become the annuitant if the contract so specifies.  OK?  So in an owner-driven contract, it will say – or it may say - that the owner, upon death of the annuitant, can become the annuitant.  Or it may even say they automatically become the new annuitant.  An insurance company can specify.  Or, Bob has the power to select a new annuitant.  But remember the caution there I said, it’s kind of like the uncharted territory, upon death of an annuitant, when an owner puts in a new annuitant, replaces them, you may have a potential tax here.  Don’t know.  This is where you want to get a high-paid legal tax person to address this.  Or, here’s another place that may be even better.  Since the insurance company will be issuing the 1099, you ask them how they look at it, and their policy, as a practical standpoint matters. Are they going to issue a 1099 or not?

Here’s a way to avoid this problem.  It’s a good idea to name a contingent annuitant in the original contract.  So, if there was a contingent annuitant named in an owner-driven contract, Mary would have passed away.  The contingent person would have automatically become the annuitant and then there’s no change in the contract.  You don’t have this potential little tax problem, because you thought about it in the beginning. 

Let’s go, next slide.  Our third condition.  Instead of this being just an owner-driven contract, this is owner- and annuitant-driven.  As I said, they’re all owner-driven now.  This one is also annuitant-driven.  And the owner dies.  As it says, since all contracts are owner-driven, the annuity terminates beneficiaries 60 days to elect annuitization, or get all the money out within five years. The beneficiaries are exempt.  So let’s assume the kids are under 59½ .  The beneficiaries are exempt from the 10% penalty upon death of the holder.  Why?  IRS rule.  That’s one of the exemptions from the 59½ penalty.  Received because of the death of the holder.  OK.  So they can be forty, and everything’s OK, no penalty. 

Spousal continuance will only apply if the spouse is named as the sole beneficiary, and that’s the problem here.  Bob dies, Mary can’t become the owner and continue the contract, because she’s not the sole beneficiary.  Now, a little wrinkle here.  Some insurance companies will say, “You know what?  We’re a little more liberal than that.” If she was one of the beneficiaries… Let’s say Bob had named Mary as 50% beneficiary and the kids, the insurance company might let Mary continue half of the annuity.  So they might be OK with the spouse being a partial beneficiary and allowing spousal continuance.  So you just have to ask because that’s just an element that may be in one insurance company’s contract and not another’s. 

Next slide.  This is our fourth situation.  Annuitant-driven contract.  An annuitant dies.  Alright, so what happens?  Well, on the death of an annuitant in a annuitant-drive contract, policy’s over, the annuity pays out to the children, they’ll decide in 60 days on the payout option.  Little catch here.  The owner who owned this contract is deemed to have given a gift to the children.  Why?  Because the kids didn’t get the payment because the owner died.  They got the payment because the annuitant died.  Another way to look at it is the owner is handing the kids cash.  And if, in this case, there’s two children and it’s more than $11,000 apiece, he has to use part of his lifetime exclusion on the payout of this annuity because Mary passed away.

Additionally, if the beneficiaries are under 59½, they will have the 10% penalty on the taxable portion of the payments, because the exception to the 59½ penalty is upon death of the owner, not the death of the annuitant.  OK?  So there’s a little snag here that I think a lot of people in the annuity business don’t realise that, again, the beneficiary can be caught with the penalty if they’re young.

Next slide.  What’s the perfect picture of the proper structure?  Well, here it is.  We drew it out so you could see it in living white and blue.  Simple structure at the very bottom.  The owner and the annuitant are the same person, and there’s a beneficiary.  If the owner/annuitant is married, the beneficiary is the spouse.  That is the ideal structure that you can ever have, and if you could from now on structure every annuity like that… Of course, not everybody’s going to be married, but in all those married situations, do it that way.  Your in like Flynn, things will be nice, tidy and simple.  The spouse will be able to continue the contract if the owner-annuitant dies, so there’ll be much longer deferral if the family wants it.  It’s a beautiful situation.  What does it avoid?  It avoids untimely taxation.  It avoids the unwanted gift taxes we saw in that last situation where the owner was deemed to have given a gift to the kids.  It avoids the 10% IRS penalty, because the owner and annuitants are the same person.  And when does the 10% penalty, what is one of the exceptions?  If the owner dies, OK?  So simply the same person.  The kids, if they’re under 59½ wouldn’t have that, and it also avoids loss of the spousal continuation, because as long as we make the spouse the beneficiary, bingo, she can step in and take over the annuity if the spouse dies.

Next slide.  So what happens in, here in your dealings, you meet somebody, they come to you and you say, “Well, let’s review everything you’ve got”.  You start looking at the annuity contract and, uh-oh, you see one of these messes.  The annuitant is one person and the owner is another person, and they’ve goy kids that are under 59½ that are beneficiaries.  So you’d say, “Man, I was just on this teleconference the other day, and here’s exactly the mess that was this situation.”  You don’t have a lot of flexibility, but you have some. First, you may be able to do a 1035 exchange from a contract that, say, maybe you’re looking at a contract that’s both owner-driven – which they all are – and annuitant driven.  And you’re able to 1035 into one that is only owner-driven.  That might solve your problem.  It could.  It just depends on the circumstances.  Because this way, in the new contract, if the annuitant dies, nothing happens, there’s no payout.  So that might solve the problem that you’re looking at in the old contract.  So keep that in mind, potential possibility.  Then in the new contract, the owner can change the annuitant.  Because in an owner-driven contract they can do that, and they make it themselves.  Bingo.  Now we have a nice, clean policy.  The owner and the annuitant are the same person, which is, you know, 99% of the way towards cleanliness.  The other thing you can do, obviously, if you see a contract poorly structured, you shall decline what potentially can happen.  I mean, you can just annuitize the money out over a short period of time.  It’ll be taxable and get it into something else where you dissolve the problem.  Again, so, just cashing in is a possibility.

Alright, next slide.  What is the tax impact of a change in the owner of an annuity?  This comes up.  Right, you meet grandfather.  He’s 76.  He’s says, “You know, I want to give something to the grandkids.  I think I’m going to give them this annuity.”  Not a good idea.  Any change in the owner of an annuity contract is a taxable event. There’s a few exceptions.  What are they?  Transfer between spouses, OK, so that’s not a taxable event.  Transfer incident to divorce, and a transfer if somebody says, “I’m the owner of my annuity.  I want to change the owner to my living trust.”  OK, so those are the exceptions.  But, be careful.  You want to have your ears go up when somebody talks about gifting it to somebody else, because then the owners going to own tax, or what about, somebody says, “Listen, I want to give something to charity.  I’m never going to use this annuity.  Why don’t I give that.”  Not the best idea.  Why?  Yeah, they’ll get a tax deduction for the fair market value of the annuity, but they’ll also have to pay tax on any gain in the annuity, right.  So, it would be much better if they just gave cash.  In other words, better if somebody gives $10,000 for a charity, gets a tax deduction for $10,000, than a $10,000 annuity.  Because they’ll get a $10,000 deduction for the annuity, but they’ll also have income tax on any earnings in the annuity.  So any transfer, except these exceptions, any change in the owner is going to give rise to income tax.  So changes in owners, just these things, that’s it.

Next slide.  Question comes up.  How is loss treated if an annuity is surrendered for a loss, or sold for a profit.  That issue has come up a lot.  More frequently with variable annuities in a bear market, right. Client put in a $100,000, the balance is only $70,000 and they cash it in.  So what’s the ramifications?  Or, I haven’t seen this in my career, but somebody has an annuity that has a profit in it, and they sell it to somebody else.  I haven’t seen that.  Normally they just surrender it back to the company, which is fine.  In any case it would be the same tax situation, but it’s always an ordinary loss or an ordinary gain. 

Now the loss, this is very interesting.  The loss is explained, two places I’ve been able to find in the Treasury rags.  Two places.  One place it says, there’s one place it doesn’t, so if you want to take the more conservative option, you’ll do it this way, that what you have is a loss between what the person put into the annuity.  Less what they get for it.  But excluding the surrender charge.  In other words, IRS is saying, you can’t include the surrender charge as part of your loss. 

Let’s take an example.  A person put $100,000 into an annuity.  When they cash it in, they only get $90,000.  But the difference, the $10,000, wasn’t because of the market value, that was the surrender charge.  IRS says you’ve got no loss to claim for tax purposes, because the loss due to the surrender charge you can’t take, the loss due to market value, fine.

The other question that comes up is, well, where do you take the loss in your tax return, because it does matter?

Well, nobody knows.  There’s been one official statement.  Where IRS says that a loss under, and it was just in one case, is a loss under variable annuity is treated as a miscellaneous itemized deduction subject to the 2% of adjusted gross income.  OK, so on Schedule A it’s one of the worst types of losses at the worst place to take it.  While there’s other places on a tax return to take a loss, and other tax authorities will tell you “No”, some will say you can take it as an itemized deduction not subject to the 2% before it will qualify.  Some people say, “No, take it on the front of the tax return, where it even does you more good”.  So a tax person will figure that out, or they’ll have to make that decision, but there’s some disagreement where the loss gets taken, and where it can best be used.

OK.  Next slide.  Remember, when you’re dealing with your clients who may be seniors and you’re involved with the family and the younger members, there is a potential detriment to the parents that pays off that the beneficiaries can reclaim, which is this issue of income in respect of a decedent.  So this arises in the case where somebody passes away with an annuity.  The annuity has gain in it, right, it’s ordinary income that’s never been taxed because they didn’t cash in the annuity, they didn’t take in any distributions, and that person also has a taxable estate.  So the person who passes away is worth $2 million.  The nasty thing that happens is, the entire annuity value is included in their estate.  Which means the following: because the whole $2 million gets thrown in when you calculate estate taxes, what’s really going to happen is, the estate tax due on that annuity, part of the estate tax is due on the principal that the person put in, and then part of the estate tax would be on the gain, the part that’s also going to be subject to income tax.  So the IRS agrees, you know what, that’s unfair to double-tax that money.  It’s unfair to actually charge Estate tax on money that you’re really going to pay in income tax.  OK?  So they even agree that that’s unfair.  So what they do is, they say, “OK, then here’s what. 

To the beneficiary who eventually gets this money, we’re going to give them a tax deduction so they can reclaim this money.  Why is this important?  Because your client is the older person, a lot of times the kids don’t know this.  So if the kids are receiving payments from the annuity, each time they get a cheque, part of that payment is interest.  It’s taxable.  And a percentage of that, the percentage that was paid, that estate tax was levied on, and in this example I say, “Look, take $100,000 annuity that’s subject to estate taxes of 45%.”  Every time the kids receive a payment, each portion of payment that’s subject to income tax received by the beneficiary, they can take a deduction of 45% of that amount, and that’s then recovering the estate tax that IRS agrees shouldn’t have been charged.  Most kids miss this because the parents don’t even know it, so IRS… what really winds up happening is, IRS, even though they agree people shouldn’t be double taxed, they wind up collecting the tax, twice the estate on the income tax because most people don’t know to take this deduction.  You can be the one to point it out to the kids, hey, you’ve got some tax deductions coming.  OK? 

            Next slide.  Protection.  This issue comes up a lot about creditor protection or bankruptcy protection.  So, except for a little, little issue here that’s a federal issue, this is a state-by-state issue. Let me tell you what the federal issue is.  You’ll see in a minute it amounts to nothing.

The federal bankruptcy rule does not lend itself to asset protection or pre-bankruptcy planning.  Specifically, the federal exemption for the right to receive an annuity provides that the payments may be exempted only if payable by reason of illness, disability, death, age or length of service, and even only to the extent the reasonable necessity, which basically means that if somebody goes into bankruptcy, has no other or very little other means of support, the federal bankruptcy laws may credit or bankruptcy protect this asset.  They’d be able to receive payments from the annuity.  So hopefully, we’re not dealing with people who are going into bankruptcy, and that’s only bankruptcy law.  Please keep in mind that bankruptcy and creditor protection are two separate things.  Somebody can lose an asset because it gets attached by a creditor, and it has nothing to do with them declaring bankruptcy, and those are two different sets of rules.  Bankruptcy and creditor.  So creditor protection and bankruptcy protection, 99.9 percent of the time are going to be a state-specific issue, so you just have to find out what the rule is in your State.  There’s only one place I’ve encountered that keep a list up to date of creditor and bankruptcy protection rules on annuities, and that’s Steve Leimberg has a service called, it’s leimbergservices.com, and it’s a subscription service.  I think it’s $20 a month.  There’s a lot of stuff on there.  Not just this.  I mean, you’ve got loads of information on anything you want to look up about estate planning, taxes, insurance, annuities, but they keep a list up to date.  The most recent list I found, you don’t have to pay anything for was a lawyer happened to put it up on his site, but he says, this is only current as of 2003, if you go to www.mosessinger.com and then there’s this little search bar, put in “annuity protection” and he has a list up there of, state by state, what the rules are.  So you just have to know what they are for your state.  I’m in California, there’s basically no protection, it’s not a protected asset.  Then I understand in places like Florida and Texas, I’ve heard that Ken Lahey has $400,000 starting in annuity payments in 2007.  Because he put a chunk of money in there because it’s credit protected.  So you’ll just have to find out where it is for your state and then have a way of staying on top of that, because that law can change. Sorry for the typo in the second bullet point.  A lot of times, agents will mention the State Guarantee Fund.  Be very cautious about doing this.

Number one: you should actually read the rule or the law regarding the State Guarantee Fund.  It was probably ten years ago.  I mean, I knew about this for a long time, and, I don’t know, ten years ago, I finally decided, “Yeah, I don’t really understand what that guarantee is.”  So I went and read the rules for my State, and basically, it’s no guarantee at all, because there’s a sentence in there that says something like, “provided we have the money” or “provided we have the resources”.  In other words, it’s not a full faith and credit guarantee of the State, they’re saying, “Yeah, we’ve got this guarantee fund, and we’ve got this thing over here if an insurance company fails, and it’s up to $100,000 for an annuity, and so much for life insurance, and we’ll do this if we’ve got the cash.”  So please read those rules before you go repeating to somebody, “Hey, you know, the State stands behind this.”  The second reason to read the rule, either in the rule, or check with your State Department of Insurance, you may not be permitted to speak about that in the sale of an annuity.  In other words, the State doesn’t want agents giving additional comfort because of this State guarantee fund.  So even though it’s there, they may not want you using it as an incentive to sell the policy.  So that’s why, just find it, search for it on the web, you’ll find it, and just read it once in your career, and then you’ll know what it is for your State.

And please remember the recent changes in creditor and bankruptcy protection for IRAs, we had the Supreme Court case, and we had the change in the bankruptcy rules for IRAs, has nothing to do with non-qualified annuities.  The rules doesn’t have anything to do. 

Next slide:  So what do other agents do wrong?  Well, here’s how I think they get into trouble, or more likely, they get people into trouble.  They’re selling the hottest annuity and they don’t know the contract provisions.  So May, they’re selling this annuity because it pays well, then June they’re selling this one because it’s got a good trick, and then November they’re selling this one because it… Not a good idea.  You’ve got to read the contracts to understand where you can mess people up.  So I think smart agents find one, two, maybe as many as four annuities that they use for long periods of time, and they know the contract inside and out.  And if you read the contract, and anything is vague that is not clear to you.  You know what you do?  You call up the insurer, and you say, “So I’m not sure here. I’m reading this contract and I can’t tell if it’s annuity-driven or not.” Because, you know what?  You will not read a contract that has a thing on it that says, “This contract’s owner-driven.  This contract’s annuity-driven.”  It will not say it that way. It’s in the reading of the contract where it says, “upon death of the annuitant, this annuity will pay out”, bingo, then you know it’s annuitant-driven.  But it’s not going to have a label on it.  So if you’re reading this thing, and it’s not exactly clear what happens under circumstances that may be important, you call them up and you’ve got to ask them.  And when they give you the answer, say, “Well, where is that in the contract?  Show me.  Point it out. Bottom of page nine?  Great, I didn’t understand that paragraph.  Now I know what it says”.  Very important that I think you understand what you’re selling, or you can be surprised as well as the client obviously being surprised.  So try not to do this product ‘de jour’ stuff, but find some contracts you really like, and stick with it. 

How to capitalise on some of what you’ve learned, and some of what’s been opened up, hopefully, for you here.  Number 1.  I’m going to give you some resources on the next page, that you’ll have as your permanent library, if you will, for these issues.

Secondly, if you’d like, we create a resource each month, it’s called the ‘Annuity Opportunities Newsletter’, which deals with some of these more obscure issues that the average agent has no clue about.  They’re just out there selling their annuity ‘du jour’.  This is the kind of thing that, when you start sending it to CPAs and  Eldercare attorneys in your community, really starts to segregate you.  They realise, you’re not an annuity salesperson.  You’re an annuity professional. 

This is the difference, by the way, between a professional and the salesperson.  The professional understands the nuances that the salesperson doesn’t.  They actually go and do the extra homework that’s not necessary, so that they really have a master level of understanding, rather than a junior level of understanding.  So that’s a resource that’s available to you, it’s $5.99 a year from us, and it comes to you every month, and you can send it out to as many people as you like, you put your picture on it.  It makes you look very professional, which you are. 

The resources, on the next page.  I shouldn’t, well, he actually prints his email address.  Dick Duff writes the annuity tax column in Senior Market Adviser magazine.  He does put his email address in there, so I’m repeating it here, because he’s already made it public, but Dick Duff is a good guy, very knowledgeable, more knowledgeable than myself.  He’s an attorney, this is a specialty area for him, so he’s a great guy that you may be able to get some help from when it really gets into some kind of knotty, thick situation where you’ve got an annuity with some weird structure.  Or he’s a great guy to call if you encounter one from 1975.  He’s a really good guy.  So he’s a human resource. 

Secondly, if you don’t already subscribe to Tax Facts from National Underwriter, please do, www.newco.com.  It is absolutely the cheapest, best resource around for people in our industry.  I think it’s… It’s so small, I forget what it is.  I think it’s $70 a year, and they send you these two books, as well as give you the internet version of it, so you can access it from wherever you are in the planet.  It’s just unbelievable the value in this thing and what it covers and the detail of it.  So just a great resource I think anybody in our business should have. Tax facts also produces a newsletter with monthly IRS updates.  So if you really want to stay on top of things, you subscribe.  I don’t know exactly what it is.  Probably $10-12 a month.  You get a newsletter that has IRS updates concerning IRAs, annuities, estate planning issue, life insurance contracts, so the kinds of things that any insurance professional would be interested in.

There is a company called Contract Review Service.  They will actually review the structure in any annuity.  They do that for a fee, that’s their business, so they’re experts in this whole structuring business.  They’ll review the entire contract.  Obviously this is something in a complex situation you might encourage your client to do, and your client will pay the fee, whatever it is, and have it done, but it’s the kind of professional advice you get. And don’t forget about the advanced underwriting department of the insurance companies you deal with.  There is usually really qualified attorneys and CPAs there at your disposal that can give you some fantastic advice, and help you structure things that would normally be really complex.

If you’re interested in meeting people who own annuities and buy annuities, if you’re not aware, we have a direct marketing system, where we show you how to use advertising and direct mail.  We’ve created ads, we’ve created a direct mail piece that you send to a list of annuity owners, and they will respond, and what they’re being offered is a booklet.  And we print the booklet with your picture, your biography, your credentials, how to contact you, so it makes you look very professional, and it’s really been a winning system for a lot of producers in a very professional way to meet people who you can make annuity sales to, or help exchange existing annuities so you can get them something better or that’s more superior to what they have.

If you’re interested in this system, just as a thank you for participating in the call, it’s normally $1,897.  It’s 20% off, so that takes it to about $1,500 or so, but write down this code: ANN1213.  As a matter of fact, don’t click on it right now, but if you click on it, it actually takes you to the order page.  But that discount will be available to you until Friday at 5.00pm (Pacific).  So you can either use it today, or you can use it any time between now and 5.00pm on Friday if you’d like to get that system.  It does have a 90-day guarantee.  What that means is, if you follow the instructions, and you’re not happy with the results at the end of 90 days, you’re going to return it to us for a refund.  So let me just make sure, there was one condition.  The condition is, you follow the instructions.  So if you follow the instructions, and you’re not happy with the results, you return it for a refund.  OK.

Just some quick comments from people who have used it.  On the next slide, it says, “I just want to let you know I’m having fantastic results with this system.  Yesterday I mailed the postcard provided in the materials to 4,000 annuity owners by geographic area.  In three hours since the first call I’ve received 15 calls” – from Michael in Atlanta.

Carla, in Omaha, says, “I received 38 calls in the first five days after I ran an ad for $89 in a monthly senior publication.  The results from the first two ads have netted 11 sales ranging from $38,000 to $279,000”.  She says, “I would recommend this senior to anyone who’s in the senior market.”

Carl, in North Carolina says, “I’ve never written a testimonial for anyone.  I do believe that your Annuity Mistakes Program should be the first.  I bought the program in March of 2003, began to market as per your instructions in April.  Here to date, or should I say from April through today, October, I’ve written $1,200,000 in annuity premium, and $30,000 of life premium.  Please feel free to use me as a referral at any time.”

So people are getting really great results, and not working very hard using that system.  So if you are looking for more clients, it may be perfect for you.  I’ll read out the questions and I’ll do my best at answering them.  So give me about 30 seconds until the first one comes through.  Let’s see.

            Can you give me a citation concerning the owner’s ability to transfer the deferred annuity to his own trust without incurring tax?

            No, off the top of my head.  I can’t.  Here’s the easy thing to do.  Let me see if I can find this in two seconds.  There is a website that has, that’s the entire IRS code online, and – give me a second, I’ll give it to you – and if you go there, you can type in some keywords … taxes … Here we go. 

US Tax Code Online:  www.fourmilab.ch/ustax/ustax.html.

You can do a keyword search, and the keywords I would search on would be “exception to change of annuity owner” or something like that, and it’ll come up, it’ll give you the list of exceptions, and one of those will be a transfer to a grant or a trust.

            Regarding the 60 day rule, if the owner of an owner-driven annuity dies, leaving a non-spouse beneficiary, does the beneficiary have the ability to have the funds transferred to another carrier that issues a brand new annuity under the titlement  on a non-taxable basis?

            I don’t believe so.  I’m not sure but I think once the measuring person dies, in the case of an owner-driven contract, the owner… I don’t think you can do any kind of 1035.  I think… In fact, I’m positive that the new owner of the annuity is the beneficiary, so you really wouldn’t have a 1035 anymore, because it’s not… You don’t have the same parties involved.

            Please review the 10% penalty instructions. 

            There’s really three big ones.  There’s no 10% penalty if the beneficiary is under 59½, and they’re receiving payments from an annuity because of the owner’s death.  That’s one.  Number two: if they’re getting substantially periodic payments over their lifetime, like somebody 55 annuitizes the annuity over their lifetime; and number three: if it’s an immediate annuity.  So anybody of any age can buy an immediate annuity under 59½, get payments and they’re not taxable.  Those are the three major exceptions to the 10% penalty under 59½.  

            What about using contingent owners?

            Well, the whole idea of the contingent owner doesn’t really make a lot of sense, and the reason is, since all annuities since ’86 are owner-driven, it means that upon death of the owner, something happens and there’s no contingent owner looked for.  In other words, it’s going to pay out to the beneficiaries.  So the whole idea of a contingent owner doesn’t matter much anymore, and I’m not exactly sure… I’ve seen this on some insurance applications, where it comes into play, or if it’s something that’s been left over from their applications from the last 20 years.  So I would check with any insurance company where you see that contingent on the application, where the heck would that ever come into play, because if the owner dies, they’ve got to pay the annuity to the beneficiaries anyway. 

If a primary beneficiary is a spouse, should the living trust be the contingent                               beneficiary (unintelligible)?

            Clearly, that’s perfectly fine.  Absolutely.  So that’s exactly right.  You always want to have the spouse as the primary, and the contingent would either be the kids or a living trust.  That would be fine.  The big thing is having a primary be the spouse. 

            On the slide, you say that a trust has no look-through provision for annuities if it’s a beneficiary.  Do you have a code citation with this estate, or if not…?

            No, I don’t have the code citation.  I unfortunately don’t have that stuff at my fingertips.  But the other part of this question:

            Does this apply with qualified annuities too?

            No.  Because I said at the beginning, this is all about non-qualified annuities.  The moment you have an annuity say, in an IRA or a qualified plan, everything’s different because the rules that pertain to the plan would rule.  For example, I said, in my State, there’s no creditor protection for annuities.  But if you have an annuity in a qualified plan, well, then there’s creditor protection for the qualified plan.  So now the annuity just got protected.  So that’s why the whole thing about qualified annuities is a whole different ballgame.

            If you run across a life policy, husband owns, wife is the insured, or the annuitant, and they want a 1035 to change cash  life to a new annuity?

Yeah, that’s OK.

            Does husband have to be the owner?

            Yeah.  You can’t change the parties.  Right.  You can’t switch the parties around.  You might be able to do that afterwards.  If it’s an owner-driven contract, in the new contract, once it’s transferred with the parties being the same, the owner may be able to change the annuitant, or the insured on the contract. So that’s the simple answer.

            80-year-old that has four grown children, he says they’re not responsible people.  He has set up a trust for their benefit.  Wants to name the trust as a beneficiary.  Why not do this?

            Well, if you name the trust as a beneficiary, that’s perfectly fine.  There just can’t be any annuitization over time. In other words, they’re all going to be subject to probably the five year payout rule.  In other words, look, they won’t be get payments, they won’t be able to elect to get payment for 20 or 30 years.  They’re just going to have to take it all out in five years.  So, yes, you can do it.  It’s the stretch, if you will, that gets precluded if you have a trust as beneficiary. 

Oh, good, somebody asked about the list that was on the ad.

            Man, I have rented about 15 of these things over the years.  I have only found two of those that worked pretty well.  One list was from a company called Listmart.  You’ll be able to find these on the web.  And the other is ActOne Mailing Lists.

            But let me give you a caution.  Both of these lists worked pretty well in my area.  In other words, I got a good response.  In fact, the first time I used Listmart I got 3.5% response, which I think is really fantastic.  Other people – and you saw Michael from Atlanta, his comment that I read you before, he used the same list.  He said, after I sent the cards out to the list of annuity owners, he said, the phone just kept ringing.  So he got good response.  But I have had people tell me, they say, I rented the list, and my response was terrible.  I cannot explain to you why it seems to work in some areas and not others.  So those are the two companies I’ve had a good experience with.  There’s another dozen or so I’ve tested, I won’t even mention because I had a bad experience, so I want to mention it, but even the good ones that I’m mentioning, I’m just giving you a caution.  Rent the smallest quantity you can and test it first.  So that you’ll know if it works OK in your area. 

            Do you like the new lifetime income guarantees and what are they?

            I’m not sure exactly what this question is, I’m going to have to pass on it.

            How is a loss due to MVA in a fixed annuity treated?

            OK.  So if a person cashes in an annuity and takes a loss on it because of the MVA or any other reasons, it’s an ordinary loss.  And IRS has implied, and I say implied because they’ve never come out this and said this exactly, unless it’s a variable annuity, so they specifically said a loss on a variable annuity is taken as an itemized deduction, subject to the 2% of adjusted gross income on Schedule A.  I’m assuming they would say, you take this on the same (unintelligible).  That it’s an ordinary loss, that’s taken on Schedule A as subject to the 2% deduction, and remember, surrender charges would not, would have to be taken out of this if any loss is due to  surrender charge.  Again, other tax professionals might be more aggressive and say, no, take the loss on the front of the return, but that person should ask their CPA.  But it’s an ordinary loss, not a capital loss where you’re subject to the $3,000 a year or anything like that. 

            Let’s see if we got a couple others here that make sense.

            Lifetime stretch in an annuity.  I understand that some allow it, and others do not? 

            Right.  Remember, the beneficiaries, one of the options that’s OK with IRS is that they can stretch the payments over their lifetime if the annuitant has not yet been receiving… there’s been no prior payments taken by the owner or the annuitant, the beneficiaries can do a stretch.  That’s what IRS says.  The contract may say that, or it may not say that.  So the contract, the general insurance company rules, and that’s one of the things that should always be in writing in the contract.  It will say what the options are.  I’ve never not seen this in a contract.  It says, “Here’s the options to the beneficiaries:” and it will list two, three, four, five options.  So that’s really a contract-specific thing, and ’cause IRS says it’s perfectly fine with them.

            What do you think about a married couple wants to own annuity jointly and be joint annuitants?

            It’s a mess.  It’s much better if… If they’re crazy about the husband or the wife being the owner, and the other being the annuitant, get them two annuities, put half the money in one where the husband’s the owner, the wife is the annuitant, then do the other one the other way around.  But it’s best if you don’t do this joint owner and joint annuitants thing.  It just leads to more problems that I didn’t even go into on the slide, or else we would have been here for several days of complications!

            I’ve not been able to get any life company ever give me a cost basis on a term policy.  I wanted to do a 1035 exchange.  Any other method accepted for tax basis proof?

            Well, the tax basis is the payments… Right…. The insurance company may not have it.  The tax basis, you can certainly rely on the investors’ own records.  I mean, if they can show, their cheques over the years, that they’ve put $50,000 into the term policy, bingo, that’s their basis.  So you just need some evidence, but you’re right.  The insurance companies may not have it.  Nor may the insurance company go along with it.  I mean, it’s their option to say, “No, we’re not doing a 1035 on a term policy.”  You know, IRS says it’s OK, but they’re just, “No.  We’re not going to do it.”  So, you’re at their effect.

            Will those dialling in will receive a CD of this call? 

            No.  There’s no CDs that I’m aware of, unless it was in the advertising for this.  If it was, then we’ll send it.  But I don’t remember seeing it in there.

            82-year-old man has five different IRAs at five banks.  His brothers son  is listed as 50/50.  Can one son take all the (unintelligible) pay the tax?

            No.  If they’re listed as 50/50 beneficiaries, the custodian’s going to pay up each of them, and that’s an IRA question.  Not an annuity question.  So I really can’t answer it, but the answer is, no, it’s going to go to both of them.

            Here’s the last one I’ve got to answer, and then I want to answer the rest of them privately.  I’ll shoot back an email.

            A $50,000 from a term insurance policy plus $30,000 cash and a basis in the annuity of $80.000 (yes, that’s the example I gave).  In the penalty period, owner wants the money, has not drawn anything prior to that.  Does that mean up to $50,000 of interest is not taxable? 

            Bingo. You got it exactly. So $50,000 of interest can accumulate in that annuity, and it will all come out tax-free, because the first $80,000 is basis. 

            Everybody, thanks so much for joining us today.  If you’re a CRFA graduate, you can get 1 credit hour for taking the quiz to this, which I would do right away, because it’s all fresh in your head.  And all you do is go to the website www.crfa.us.  You’ll log in with your email and user ID and you’ll see the quiz right there.  It’ll say, “Take the quiz on annuity issues.”  You’ll click on the link, take the quiz, hit submit, and bingo, we’ll grade it and, of course, you’re going to get them all right.  And you’ll get at least one CE credit for the year for your CRFA credential.  Anybody else who’s not a CRFA, who wants to know more about that, all that information is at www.crfa.us. 

            If you have questions either about the annuity, direct marketing system, I talked about and getting the discount during the discount period, or the CRFA credential, please, you can certainly talk to one of our advisers: 800‑980‑0192 and press Option #4.  It’s only 2.15 here so we should have a full staff here till 5 o’clock Pacific Time, and there should be somebody readily available to talk to.