Annuity maximization: A strategy to leave more to your heirs

What if you’re living comfortably in retirement and, instead of needing that deferred annuity, you decide you want to leave it to your heirs at your death? However, transferring your deferred annuity at death may subject it to both estate and income taxes. One strategy that can minimize the impact of these taxes is called “annuity maximization,” using permanent life insurance. [emember_protected custom_msg=”Click here and register now to read the rest of the article!”]

How annuity maximization works

Basically, you exchange your deferred annuity for a single premium immediate annuity (SPIA), which provides an income stream to you for the rest of your life. You then obtain permanent life insurance with you as the insured, and use the SPIA distributions to pay the insurance premiums. At your death, the SPIA payments stop and the insurance proceeds are paid to your beneficiaries.

Why annuity maximization works

Instead of getting the deferred annuity at your death, your beneficiaries receive the life insurance proceeds, income tax free. And you can effectively remove the value of the deferred annuity from your estate by converting it to a SPIA. Since the SPIA payments cease at your death, the SPIA is not included as an asset of your estate.

In addition, the life insurance can escape estate taxes, if the policy is not part of your estate at death. To achieve this goal, you can’t own the policy; it must be owned by another (e.g., your child or an irrevocable life insurance trust). You then make gifts to the policy owner equal to the annual insurance premium. However, gifts may be subject to both federal and state gift taxes, so you should consult your tax professional before making such gifts.

As federal and state tax rules are subject to frequent changes, you should consult with a qualified tax advisor prior to making any investment decision.

Raymond James & Associates, Inc. member New York Stock Exchange/SIPC



BIO: Brad Dantzler is a trusted financial advisor with over 18 years of experience. He is active in his church and community, has been an active President’s Club member for six years, and is currently president of the Winter Haven Library Board as well as a Winter Haven city commissioner. [/emember_protected]

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