| Annuities are the opposite of life insurance | | | | a lump sum. Upon your death, that portion of |
| because they are estate-liquidating financial | | | | your estate that you sold to the insurer would |
| products. While life insurance seeks to create an | | | | not constitute part of your estate and your |
| estate, annuities generally seek to use part of | | | | beneficiary may be able to receive tax-exempt |
| your estate to create an income stream. | | | | income from the annuity. If you wish to retain the |
| Therefore, an annuity is not vital to estate | | | | value of your estate for beneficiaries, certain |
| planning in the sense of building your estate. | | | | annuities are not advisable. In several cases, the |
| However, it has an impact on your estate in | | | | estate-liquidating feature of annuities can redound |
| various ways. | | | | to your benefit. |
| You can use an annuity as a tool to manage your | | | | Estate taxes on annuities |
| estate, create tax-exempt income or liquidate | | | | The tax treatment of annuities in the |
| part of your estate to qualify for estate-tax | | | | accumulation phase (before maturity) may differ |
| exemptions. Annuities are critical to estate planning | | | | significantly among states and countries at any |
| because they can affect the value of your estate | | | | point in time. In some cases, the cash value at |
| and the tax treatment of your estate when you | | | | death (for deferred annuities) is subject to tax. |
| depart the earth. | | | | You must be aware of the treatment of the |
| Estate liquidation | | | | proceeds of a deferred annuity if your death |
| Until an annuity reaches its payout phase, a | | | | occurs before it matures. Usually the 'death tax' |
| portion of the accumulated value can be included | | | | rate is not significantly higher than the income tax |
| as part of your estate. However, at the payout | | | | rate but it can increase the tax burden of your |
| phase, the insurer converts the total cash value | | | | estate. |
| into a series of payouts based on an annuitization | | | | Survivor options with annuities |
| rate. This is the estate-liquidating aspect of | | | | When an annuity matures, insurers or annuity |
| annuities. Therefore, when using annuities as part | | | | providers require annuitants to declare the |
| of your financial planning, you must consider their | | | | 'survivor' options. This option is really a transfer |
| estate-liquidating function, which can work either | | | | mechanism for annuity income. While it reduces |
| for or against you. | | | | the value of your annuity payout, it provides a |
| Using annuities to reduce the value of your estate | | | | seamless transition from the annuitant to a |
| Many countries or states have estate-value | | | | designated beneficiary. The annuity income is |
| thresholds. Beyond the stipulated threshold, an | | | | usually tax-free and can be useful if you have a |
| estate's value is subject to tax. You must check | | | | spouse who is dependent on your annuity income |
| with the relevant tax authorities to determine | | | | as well. |
| what this threshold is. You can purchase annuities- | | | | Annuities may not appear to have a link to estate |
| particularly immediate annuities- to reduce the | | | | planning, particularly as it does not help to build or |
| value of your estate so that it is below the | | | | maintain your estate. However, an annuity is a |
| threshold level. | | | | tool that you can utilize to assist with the planning |
| When you purchase an immediate annuity, for | | | | and managing your estate. Knowing how to use |
| example, you can benefit by having income from | | | | annuities in planning your estate is better for you |
| part of your estate by relinquishing ownership of | | | | and your beneficiaries. |