Annuities

Are You Concerned About Leaving Your Heirs Lump Sum Money?

By Bill Broich

Need income and want to provide for your heirs?  Here is a simple method of accomplishing both goals.  

Many people are very concerned about leaving a large amount of money to their children. They are concerned that the money may be spent foolishly and their children would be in trouble financially. If you are concerned, don’t feel alone, many people are worried about the ability of their children to manage money. 

There are several ways to control money from a grave, the use of a guardian or a trust can help preserve money for a period of time.  Those options can be expensive and difficult to maintain.  In addition, often hard feelings develop by those inheriting the money. 

There is one way to leave money (or a portion) of money to heirs that has tax advantages as well as guaranteeing funds will be available for a specific time period.  Instead of leaving cash, leave an income stream. 

An income stream is a fully guaranteed method to insurance there are funds available on a monthly basis for virtually any time period you desire.  Plus, any income tax liability is spread over the same time period making taxes far easier to manage. 

Here is how it works. Purchase a Single Premium Immediate Annuity (SPIA) from an insurance company and instead of selecting a lifetime payout, select a fixed term payout.  An example, it could be payable on a monthly basis for 10 years, 20 years, longer, anytime period you wish.   

Insurance companies do not care how long they pay the monthly payment because that means they get to hold the money longer.  Included in the monthly payment to you will be earned interest and a portion of your original deposit. 

The return of your original deposit each month is a NON taxable event, the tax liability is only on the included earned interest. Let’s use as an example a deposit of $50,000 had grown to $100,000 in value.  This gain ($50,000) is fully taxable BUT if the money is received as a fixed income, the earned interest is “spread” out over the time period of the selected payments regardless of how many years it pays. 

Plus, if you begin the payments and die, your heirs ONLY receive the income stream payable on your original time period.  If you selected a 30-year monthly payout, any remaining years at your death would continue on for the entire original period.  Your heirs do NOT inherit the money, they inherit an income stream, payable exactly as it was when you were alive.   

Plus, they inherit the exact tax liability which is still spread out over the life of the original time period.   

This method is a way to avoid “spendthrift” issues with your heirs and at the same time guarantee that income will flow to them.  As the owner of the original contract, you can name as many people as you with to receive the income after your death, the insurance company merely divides up the payment and send it to them. Also, if family events dictate, you can change the beneficiary as often as you wish, the owner of the contact has full control. 

Plus, annuity contracts with a named beneficiary are not subject to probate, the funds just keep on flowing. 

If you are concerned about your heirs, here is one way to alleviate concern and make sure income is available to those you love.

Bill Broich
Bill Broich is a well-known annuity expert with over 30 years of experience. He has written hundreds of articles on annuities and other financial topics, and has been a featured commentator on TV, Radio and the Internet. To follow Bill's profile, click here.
Bill Broich
Bill Broich
Bill Broich