annuity for a non-profit?

[pfg1]

I have a client that is in charge of a non-profit that has a decent amount of excess money from the sale of some assets and they want to put it somewhere to grow perpetually, and peel off a small amount of the profit each year to fund certain things.

Any suggestions on what carriers are non-profit friendly, and or a product that may be a good fit? I've never worked with a non-profit before. They are a 501c3. TIA!

 

[DHK]

How about a single premium life policy instead? Same taxation rules apply.

Per Tools and Techniques of Life Insurance Planning:

Natural Persons Only

Tax-free buildup within the contract is allowed only to natural persons.[5] If an annuity contract is held by a person who is not a natural person, then the annuity contract is not treated as an annuity and the income on the contract is treated as ordinary income received or accrued by the owner during that taxable year.

Corporations are not natural persons. Neither is the typical trust, although a trust acting as the agent for a natural person would itself be considered a natural person. But if an employer is the agent for its employees, the contract will be considered as if owned by the employer. The employer will therefore be taxed on the inside build up. This means that annuities are no longer appropriate tax advantaged investments for nonqualified deferred compensation agreements. Exceptions from the natural persons rules allow tax-free buildup of the following annuities:[6]

(a)Annuities received by the executor of a decedent at the decedent’s death

(b)Annuities held by a qualified retirement plan or IRA

(c)Annuities considered qualifying funding assets (used to provide funding for structured settlements and by property and casualty insurance companies to fund periodic payments for damages)

(d)Annuities purchased by an employer on termination of a qualified plan and held until all amounts under the plan are distributed to the employee or his beneficiary

(e)Annuities which are immediate (i.e., those which have a starting date no more than one year from the date the annuity was purchased and provide for a series of substantially equal periodic payments to be made at least annually over the annuity period)

While I know you're talking about a non-profit entity, it's still not a 'natural person'.

 

[fed up]

Ladder up some CD's for the customer so they can gain some interest and also have use of the amount on any 1 CD at maturity. Put the bulk into something else so it is not touched

 

[Tahoe Ray]

I have a client that is in charge of a non-profit that has a decent amount of excess money from the sale of some assets and they want to put it somewhere to grow perpetually, and peel off a small amount of the profit each year to fund certain things.

Any suggestions on what carriers are non-profit friendly, and or a product that may be a good fit? I've never worked with a non-profit before. They are a 501c3. TIA!

Several carriers will take this business.

In my experience, most want guaranteed returns so FIAs aren't really a good fit. Just look at MYGA rates in their state. Likely better than CDs and will allow for free withdrawals of at least interest if not 10-15% of the principal.

 

[pfg1]

Several carriers will take this business.

In my experience, most want guaranteed returns so FIAs aren't really a good fit. Just look at MYGA rates in their state. Likely better than CDs and will allow for free withdrawals of at least interest if not 10-15% of the principal.

Thanks Ray, that was my thought also. I know Lincoln can do them, not sure who else yet.
Any suggestions on a good company/product/rate? This is in VA.

 

[Allen Trent]

Read the contract language before putting a non-profit, on any entity for that matter, into an annuity. Because Annuities need an annuitant on the policy to be the insured with a date of birth of which all the payout tables are based upon, they need to pick someone to be the annuitant.

Check what the contract says happens when the contract matures. some contracts state the money becomes the annuitants money at maturity. you can imagine this can be a problem if the policy inadvertently matured & became the annuitant.

Also, death of the annuitant could be an issue. If the annuitant died in say year 1 of a 7 year MYGA rate, the entity may want to hold on to the annuity & keep it for the great interest rate it is getting. But the contract & the IRS may have some stipulations that the claim must be paid out upon the death of the annuitant. Holding on to a contract for 4-6 years without notifying the carrier could backfire if the high interest rate is not guaranteed after the death of the annuitant, but a lower death claim rate should have been paid.

like DHK said, non-natural persons cannot benefit from the tax deferral. So, entities are supposed to report inside build up each year. Might not apply to a non-profit, but a bigger problem for an LLC, Corp, partnership.

Single Premium Life might fit better in some cases as the funds never become the insured, are always owned by the owner, don't have the non-natural tax deferral issues & lastly have a leveraged death benefit at the time of death.

SPWL or an IUL/IUL with PDA might be an option along with an early values rider to keep the balance sheet from taking a hit from a cash value drop up front. Some PDA accounts are paying 4% while the money moves over & into the IUL if it cant all be fit into the IUL up front for some reason. MEC is likely a non-issue for non-profit, so likely wouldn't need PDA unless the carrier IUL cant receive all the funds into IUL in yr 1 for some reason