Using Annuity Maximization to Leave More to Your Beneficiaries

If you find that you no longer need a deferred annuity that you purchased years ago, and that you want to leave it to someone upon your death, you may want to consider annuity maximization using life insurance.

When you die, the annuity death benefit obtained by your beneficiaries may be subject to income and estate taxes. By exchanging your deferred annuity for a single premium immediate annuity (SPIA), you can avoid these taxes. You receive distributions for life, which you use to pay life insurance premiums. Upon your death, the SPIA distributions stop and your beneficiaries receive the insurance proceeds.

Since the SPIA payments terminate at your death, the SPIA is not included in your estate. The life insurance premiums also are not included in your estate if you don’t own the policy. Further, your beneficiaries will receive the life insurance proceeds income tax free. This strategy allows you to increase the amount you leave to your beneficiaries.

See Jason Kestler, Annuity Maximization: A Strategy to Leave More to Your Heirs, Producersweb.com, Nov. 8, 2010.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this to my attention.