Annuity Maximizations

Client Profile

Age: 60+ and in good health.*

Concern: Has deferred annuities not needed
for income purposes. Would like to tax-efficiently transfer these assets to heirs.

Suitable Assets: Deferred annuities with significant growth above the client’s cost basis.

Tax Status: The strategy works best when
the client is in a 30 percent or higher marginal tax bracket and is concerned about estate tax
liability.

Other: Client should have other assets to
satisfy annual income needs.

* Distributions from annuities prior to age 59 1/2 may result in a 10 percent penalty.

This strategy converts an asset that is subject to estate tax into a tax-efficient asset. Existing deferred annuities are either annuitized, 1035 exchanged into a Single Premium Immediate Annuity (SPIA), or systematic withdrawals are taken, providing an annual stream of income. The client gifts the net after-tax income to an Irrevocable Life Insurance Trust (ILIT),1 which pays premiums on a life insurance policy to replace the original asset for the benefit of the heirs.

Benefits

• Estate tax liability is reduced.

• Wealth transferred to heirs is increased.

• If annuitization or SPIA funding is chosen, payments are guaranteed for the client’s lifetime.

• Tax favored income: If annuitization or SPIA funding is chosen, a portion of each payment will
be excluded from income taxation until all of the client’s cost basis has been returned.

• Maintain control and liquidity of assets: If withdrawal funding is chosen, the client retains
the ability to access additional funds if needed.