If you ask most people what their most valuable assets are, they usually say their homes, or their jobs. However, if you ask them to think about it a little more, the answers change and become more focused on people and relationships. As couples and individuals work to generate assets for their retirement and enjoyment, they start to think about the kind of legacy they want to pass to their heirs, says Think Advisor in the article “Annuities and Heirs.”

For many, the ability to leave loved ones with significant financial support is a top priority. This requires good estate planning.

Estate planning can be complex, and the laws do change. Understanding how legacy planning aligns with retirement planning is an important concept.

How do you successfully transfer wealth to the next generation?

The most common approach is to have no strategy at all. This never works well, and usually leads to an expensive estate administrative process, legal battles between heirs, high taxes and the likelihood that the inheritance will evaporate rapidly.

One legacy transfer strategy involves the use of annuities. Because these contracts come in all shapes and sizes, it’s important to understand how these investments work. Annuities purchased for wealth transfer can be set up as income streams to children or grandchildren, especially if they have stretch capabilities. Some annuities allow for greater access to principal than others, and many are designed specifically for wealth legacy planning.

Some of the control levels include:

  • Beneficiaries may choose the method of payout, from a lump sum to various withdrawal strategies.
  • A portion may be paid as a lump sum and the remainder offers a few withdrawal choices.
  • A lifetime stream of distributions is set up for a beneficiary, based solely on the client’s direction.
  • The lifetime distribution is in effect, but if the owner wants to make a change, they can be rescinded. This can only be done with certain annuities. With many annuities, once it is set, there are no changes permitted.

Talk with your estate planning attorney about the kind of legacy you wish to create for your heirs, and what methods and tools they believe will accomplish your goals.

Reference: Think Advisor (Aug. 6, 2019) “Annuities and Heirs”

Suggested Key Terms: Annuities, Wealth Transfer, Estate Planning Attorney, Heirs