The Ultimate Gift: Lifetime Income

07/17/2012 9:30 am EST

Focus: ANNUITIES

Stan The Annuity Man

Annuity Expert, Stan The Annuity Man

Whether or not you've enjoyed a lifetime income stream through annuities, you can give your heirs similar peace of mind and have more control how your estate is distributed in this strategy explained here by Stan The Annuity Man.

If you have ever heard me speak or read my articles, you know two of my main “Stan-isms” are:

  • Buy annuities for what they will do (contractual guarantees), not for what they might do (hypothetical/non-guaranteed returns).
  • Annuities contractually solve for four things (acronym PILL): Principal Protection, Income for Life, Legacy, and Long-Term Care.

Recently, I have developed a new strategy that combines both Income for Life and Legacy to enable parents, grandparents, aunts, and uncles to leave a lifetime income stream to their loved ones.

Instead of leaving a lump sum and worrying about your child or grandchild showing up at your funeral in a Ferrari, you can instead really make them mad (and also do them a favor) by leaving a lifetime income stream. Now that’s what I call a legacy!

Think about it: every time that income payment comes in for the rest of their life, they will have to think about you (glowingly, of course). My name for this strategy is Lifetime Legacy Income.

The best part about this strategy is that you have full control of the money while you are alive, and can contractually dictate how the money will be distributed...from your grave. Now that’s what I call control!

At this point in the article, all of you “control freaks” are wondering where I have been and why you didn’t know about this before now. Take a deep breath, calm down, and keep reading, because it gets even better.

Recently, I had a client contact me and say that he wanted to set up his grandson (age 33) with a lifetime income stream, and also take care of his great-grandson (age 2) in the process. He didn’t want to give the grandson access to a lump sum, but instead provide a lifetime income stream.

He also said that the family did not know the grandson's whereabouts. And to make things more difficult for Stan The Annuity Man, my client said he was in his final stages and wanted to get this done quickly.

Here is how I solved the problem for him and his family. I am an independent and represent over 100 carriers, so after a bunch of phone calls, I found an A+ rated carrier that would issue the policy with the grandson’s birth certificate alone, and not require a signature from the grandson.

I set up the Single Premium Immediate Annuity contract with the grandson as the “annuitant." (FYI, the annuitant’s age is what the income stream is based on.)

I also set up the contract as “Life with 30-Year Period Certain.” This means that it would pay for the grandson’s life, regardless of how long he lived, with a minimum of 30 years of payments...and this means that if the grandson died two years into the contract, then his son (the great grandson) would receive 28 more years of payments.

Because my client said he didn't want his grandson to own the policy or have any control, we made his father the owner of the policy and the father’s brother the successor owner, in case the father passed away before his son. Take a breath right here, and revel in the beauty of this strategy, because yes, I did cover every “what if” base!

The payments would go directly to the father for him to directly take care of his son and grandson. If the father dies, then his brother (the successor owner) would fill that same oversight role. This was all done on behalf of the grandson by his loving grandfather...and without the grandson even knowing. I’m not sure to this day that the grandson knows.

What a gift of legacy and income combined. This is why I love what I do! Of course, this is an extreme example of legacy income, but it shows you what can be done contractually with a pure “transfer of risk” strategy.

Below are some general rules that might come in handy if you want to consider doing some legacy income strategy planning. There are a lot of machinations to this strategy, but below are the basics you would need to start the consideration process.

  • For IRAs, you can add a child or grandchild as a joint annuitant as young as 18 years old.
  • For Non-IRAs, you can set up a legacy income strategy for a child or grandchild as a joint annuitant as young as one day old.
  • If you don’t need the income to start right away, you can defer turning on the lifetime income stream for up to 45 years! You should see those guaranteed numbers! Phenomenal is an understatement.
  • If you need income now, but want to leave an income legacy, you can add children and grandchildren as co-annuitants to the policy, with you still being 100% owner of the policy. This is important because the owner retains full control of ownership.
  • If you list a co-annuitant, the lifetime income payment will be based upon the actuarial life expectancy of the youngest annuitant. In other words, the payment will not be based on your age or life expectancy, unless you were the youngest-age annuitant.

When setting up these types of legacy strategies, I am usually working side by side with my client’s CPAs or tax lawyers, especially when a trust is involved or it affects the overall estate plan. There is nothing complicated to the legacy income process, but I always want to make sure that everything is in order for the family.

I’m sure that this is the first time you have heard about this type of strategy, and you can probably guess the reason why. Yes, the commissions are very, very low, which means that it is probably very, very good for the client!

The bad chicken dinner seminar that you are constantly being invited to attend is not going to show you the Lifetime Legacy Income strategy. Trust me on that one.

A reporter recently called me the National "Annuity Consumer Advocate" in the same vein as Ralph Nader and Clark Howard are for other products and services. My goal as Stan The Annuity Man is to be that person, and I hope to continually educate the public on the complex and sometimes ugly world of annuities and become the go-to resource for "all things annuity.

I recently published The Annuity Stanifesto, fully explaining in an easy-to-read format how these misunderstood and misrepresented products actually can work within your portfolio. You can get a free copy of The Annuity Stanifesto by going to my Web site and downloading your copy.