Investing in Your Future: Annuities as Estate Planning Tools


For anyone looking for a long-term investment with guaranteed lifetime income, annuities present a viable option. These financial tools offer a wide range of benefits, with numerous options and flexibility.

It’s important to note that an annuity is not a short-term investment. If you’re looking for quick returns, an annuity is not the answer. However, as part of a well-rounded estate plan, an annuity can help you reach your retirement goals.

What is an Annuity?Annuity Globe Cholewka Law

Annuities originated in Rome, around 2,000 years ago. Called annua, they closely resembled today’s annuities, with the buyer paying the seller a lump sum of money. Throughout the buyer’s lifetime, the seller would then provide the buyer an annual income from these funds. Though many changes occurred in the following centuries (for example, they were used as war coffers for hundreds of years), annuities rediscovered their original purpose in the late 19th century.

There are various types of annuities, which are contracts and transfer-of-risk strategies that solve for four primary solutions; lifetime income, principal protection, legacy planning, and confinement care/Long Term Care. If you do not need to contractually solve for one or more of these goals, then you do not need an annuity.

An annuity is a life insurance product issued by a life insurance carrier. Investors pay into the annuity, either as a lump sum or through regular payments, or possibly both. Then, at a future date, the investor receives payments on his or her investment. These payments may occur monthly, quarterly, yearly, or in a single lump sum.

Unlike most investments, annuities can offer a guaranteed income for life. In other words, no matter how well the stock market performs (or how poorly), your income is guaranteed. This helps protect your assets, and provides a level of stability that most investments lack.

What are the Benefits of an Annuity?

The main benefit of an annuity is its reduced risk factor. Investing in stocks and mutual funds offer higher returns, but at the cost of increased risk. In other words, if the stock market tanks, you could lose your money. The lifetime guaranteed income of an annuity protects you from that risk, making it a safe long-term investment.

Annuities also offer tax benefits, as taxes may be deferred until you begin drawing funds from the annuity. Typically, you pay ordinary income taxes on these withdraws.

Finally, annuities can avoid probate, thanks to your ability to name a beneficiary, who receives the remaining funds when you pass.

Annuities v. Trusts

When it comes to estate planning, the question of annuities or trusts doesn’t have to have an either/or answer; each tool offers extraordinary benefits. In some areas, trusts offer much greater flexibility than annuities provide. However, annuities offer a level of simplicity appreciated by many, and do not require the naming of a trustee.

If you own a decent amount of property and/or a business, a trust offers solutions you won’t find with an annuity. If you don’t expect funds to remain in an account for at least 10 years, an annuity is not the right choice. However, if you’re looking for an investment that provides a secure retirement and reliable income, and the ability to name beneficiaries, an annuity makes a solid addition to your overall estate plan.

Working with the Right Investment Team

You should work with an experienced financial planner to determine if an annuity is a right product to include in your overall financial plan. These professionals can provide ample information regarding the different types of annuities. You’ll discuss your financial goals as well as your available funds for investment. Together, you and your advisor determine the best product to fulfill your needs.

You should also include your estate planning attorney and tax accountant in these discussions so that your team of advisors know your overall goals. This will ensure an overall plan is created to meet these goals.

If you have any questions that were not covered in this article, please post your comment below, we will respond promptly.

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