Annuitized Estate Plan

June 1, 2017

How an Insured Annuity can be a benefit to you and your heirs

This concept is a win-win for both yourself and your heirs, as it creates income while living and capital for your heirs when you have passed on. An insured annuity provides an attractive alternative to today’s low, fixed-income investments. While it provides a tax-efficient lifetime income, it also preserves or increases the original capital for the estate.

An insured annuity is a blend of two products: an annuity and a life insurance policy. The annuity provides the income and the life insurance policy preserves the capital, providing a tax-free payout when the individual dies; hence the term “insured annuity”.

Using an Insured Annuity for Wealth Creation

With an insured annuity, capital is used to buy an annuity. The annuity will pay a guaranteed income for life (part of the income is interest, and part of it is a return of the capital invested, thus lessening income taxation). Part of the annuity income is used to pay for life insurance. Typically, the annuity will pay a greater income amount than the premium for the life insurance policy, thereby leaving you with a residual lifetime income. For income and tax planning purposes, this concept usually works best when the annuity is non-registered. As always, it is essential to consider your estate goals with someone qualified who can help you determine if an insured annuity is right for you.

What are the resulting benefits of an insured annuity?

Larger, lifetime flow of income. The insured annuity strategy is virtually maintenance-free, with no need to actively manage as an asset portfolio. The income stream, guaranteed for the life of the individual, can be continued at the same level for the life of the spouse.

As well, income payments can be guaranteed to pay for a certain period (often 20 years) no matter when death occurs. The strategy provides more income and generates less tax than conventional interest-income investments. Income is automatically eligible for the pension tax credit for individuals age 65+, making this an attractive program for them.

Original capital is preserved to transfer to the estate or charities. With a named beneficiary, the capital passes directly to heirs or charities without probate or transfer costs. However, the guaranteed income flow cannot be changed or cancelled. Is this an advantage or disadvantage? That depends on market conditions and individual circumstances.

A plan for the conservative and senior market

This strategy is considered more appropriate for conservative seniors over age 50, or people concerned about fluctuating interest rates, ongoing management, and investment decisions. These individuals wish to increase their guaranteed income without increasing their investment risk while preserving their capital for their estate.

 

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