Annuities have gone through an evolution and because of this evolution we now find that we are dealing with more of a hodge-podge of annuity products. As a result, annuities are commonly sold on the benefits of the so-called first year bonuses, 10% free withdrawals, tax deferred growth and the ability to capture stock market returns without the risk to principle and these benefits, as well as others, may be beneficial to the average annuity consumer.
The fact is, we as annuity marketing and salespeople and retirement advisors, have often become complacent when we set the stage for selling the annuity concept as a safe haven for retirement. At times, we are far from being fully recognized as a well-rounded Retirement Planning Specialist and are just seen as being an annuity sales person – but you are not just another sales person.
In the past decade, over one trillion dollars have been invested in annuities and 80 to 90 percent of those annuitants and owners are not taking an income from the annuities and in fact will never need to. Many annuitants and owners are keeping the funds in annuities to pass on to their heirs or for the ability to access the funds, should they need nursing home care.
According to the IRS publication #575, 100 percent of the earnings from annuities are fully taxable upon distribution to the heirs. Without sound planning, your client’s annuity dollars could go to the IRS, resulting in substantially reduced benefits to their heirs. Assisting clients in planning that will allow them to leave a tax free inheritance to their heirs will change their lives for generations to come. With people living longer, new retirement strategies are needed to fulfill the wealth transfer objective.
As the annuity broker professional, how do you set the stage for properly implementing the so-called annuity arbitrage or rescue concept? It simply can start with identifying whether or not the existing annuity accounts are providing the client with money to live on in retirement, or if the money is intended to be left to the client’s heirs, which are their children and grandchildren. This can be done using a simplified, quick issue method of repositioning current annuity assets to attain a tax-free transfer of wealth at death.
The annuity arbitrage concept can be implemented through various methods. The first method can be as convenient as utilizing the 10 percent free withdrawals by leveraging those withdrawals into a competitive, flexible premium universal life product. The second method is to completely annuitize the policy, in which most annuity companies will waive the surrender charge upon annuitization and allow the annuitized payment to be funded into a flexible premium universal life product. Now let’s not forget the third method of annuity arbitrage, where we now have the ability to place 100 percent of the annuity proceeds into a new, innovative single premium universal life product. With this product the client has the option to receive a loan equal to the amount of the tax expected, once the annuity account is converted into the life insurance product. What an economic way of converting annuity accounts!
By the use of life insurance, our clients can still maintain tax deferred growth while continuing to be linked to stock market returns, with certain index universal life products, and they provide long term care protection as well as offer guaranteed death benefits for the beneficiaries.
Two things in life are certain: death and taxes. As a professional working with Tyrone Clark and Brokers Choice of America as well as with BCA Marketing, I strongly believe it’s a very ripe time to embrace and implement wealth transfer strategies in order to take care of our clients. This way, if they live another 30 years, they can leave tax-free money to their children and grandchildren, while providing themselves with long term care protection. In the end, you will be the recognized retirement professional you are, and the one who is skilled in offering clients sound planning advice.
