My wife is the beneficiary of her mothers annuity. It is non qualified money, and were are trying to decide the best way to take the settlement so 1) we minimize taxes and 2) if we have to use the money to help take care of her father we can get access to it. Other than buying me a Porsche we don't need the money right now.
annutiy settlement option
- Thread starter capnjim01
- Start date
- 2,262
What is the amount? What are your thoughts on taking care of Dad? Most long Term Care facilities will be charging upwards of 5000-7000 per month, Assisted Living could be 4000-5000 per month. If Dad is in relatively good health, one thought would be to ladder CD's so that the monthly care cost is mostly or entirely covered. You might also be able to achieve this (at a higher interest rate) with a SPIA (Single Premium Immediate Annuity) Just make sure that there is little to no surrender charge if you need a lump sum, (stay away from VOYA). while Dad is in good health the check rolls in monthly and if you don't need it you deposit it back into a financial institution, meanwhile gaining a safe return on the initial money. I am sure financial guys will have other ideas
- Thread starter
- #3
We're going to have to take of Dad, however he has about $300,000 in cash and annuities that we'll use up first. Health is not that great and he is living with us and we get the house when he passes, it's paid for and worth another $350,000. So with what he has, the house and the annuity from my mother in law that's about $900,000 we have for his care.
Annuitizing it for life will be most tax-efficient but won't allow the access that you're looking for (there are commutation and liquidity options at some carriers but you'll still take a hit).
You could do a non-qualified stretch (while it's still allowed) to maintain liquidity and w/d as little as possible. That assumes that the existing annuity is decent and/or you can move it to another carrier. Not all carriers allow non-qual/non-spouse stretch annuities.
A lot of this comes down to basis vs. account value. If they're close, you could just surrender the whole thing and pay the taxes and invest for your own retirement. If the spread is larger, you have to consider other options.
You could do a non-qualified stretch (while it's still allowed) to maintain liquidity and w/d as little as possible. That assumes that the existing annuity is decent and/or you can move it to another carrier. Not all carriers allow non-qual/non-spouse stretch annuities.
A lot of this comes down to basis vs. account value. If they're close, you could just surrender the whole thing and pay the taxes and invest for your own retirement. If the spread is larger, you have to consider other options.
jasperjohns
Super Genius
- 198
Another planning consideration should a personal service contract and a trust to possibly shelter some of the assets at a future date. Since all assets transferred into the proper type of trust would be subject to a 5 year look back it would be prudent to consider planning sooner rather then later. An Elder Law attorney would be able to advise on the specifics and whether or not any of the aforementioned planning strategies are relevant to your situation. If they are the strategies could preserve a substantial amount of money for the family.
And finally sometimes an annuity can be annuitized in such a way that the payments can be part of a larger plan to shelter assets. These are all topics to discuss with an attorney.
- 4,570
That might not be the best idea tax wise or rate wise. Suggesting laddering CDs suggests taking a lump sum settlement, meaning all gains will be taxed to the posters wife all in 1 tax year. Buying a SPIA suggests the same lump sum settlement
The 1st settlement I would look into to maximize both the payout & spread out the taxes is to ask for quotes on taking the settlement option of Payout Annuity/Annuitiziation. This will spread the taxes on the taxable gain over the length of the payments. Also, if the annuity is older, it will have very favorable payout tables because of outdated higher interest rates & shorter life expectancy. Both of which mean higher monthly checks than can be bought with a new SPIA purchases. New current SPIA offerings are both low interest & long mortality because of actual numbers today.
- 4,570
I would ask the current carrier of the annuity before you process the death claim for the following quotes for your choices:
1. Lump sum--how much of the 300k is going to be reported as taxable gain
2. Ask for quotes on Payout/Annuitization for maybe a Lifetime payout in your wife's name & maybe a straight 10 year fixed period payout. These will not only spread out the taxes due on the taxable gain over the length of the payout timeframe, but will also utilize potentially any high guaranteed rates embedded in the annuity contracts tables in the back of the contract.
3. Another IRS permitted option is to do a 5 year deferral. This means you have 5 years to empty the entire account value. You can take it all at anytime or take some each year or wait & take it out at end of 5th year. Usually best to take 1/5 of the gain out each year to spread the taxes over 5 years & take the balance in the 5th year. Downside is the interest rate may be low & it limits the spreading of the taxes to only 5 years where #2 above could spread it over many more years.
4. Ask if the carrier allows a settlement option of inherited RMD which can be the most tax efficient, but may not pay very good interest rates like #2 might. Also, while most carriers allow inherited RMD for IRA/qualified accounts, not as many offer inherited RMD settlement option on Non-Qualified Annuities.
My condolences for your loss & for being a caregiver. Going through the same with my family as my mother lives with us on Hospice. It can be exhausting mentally & physicall.
Take your time on processing of this claim as you cant go back & change the selection after it processes.
- 4,570
I dont believe the sheltering is an issue. From the way I read the post, the husband of the deceased wife is not the beneficiary of the annuity in question. The daughter is receiving the annuity as a beneficiary. I dont believe that would be considered a gift under the 5 year look back like writing a check or changing the name on a deed or bank account.
Contacting an elder care attorney is great advice to verify all items & plan for the future
- Thread starter
- #9
Already in place.
