Considerations when funding a trust with an annuity

On behalf of Scaringi Law posted in Estate Planning on Saturday, March 14, 2015.

An incredible variety of asset types can be titled in the name of a trust. Today's post explores the benefits of funding trusts with variable annuities.

First, a definition: A variable annuity is a type of insurance contract where the policyholder selects the investments, and the tax-deferred income is based on the performance of those investments. Income is tax-deferred until withdrawn. Unlike a fixed annuity, where the payout is a fixed sum, a variable annuity is less certain, although some contracts may guarantee a minimum payment amount.

Since annuities, both fixed and variable, offer payments during the life of the annuitant, this begs the question of how long payments will last if a trust owns the policy and is also listed as the beneficiary. The answer is that the policy's duration is still limited to the life of the human annuitant, even if that person is no longer the policy owner or beneficiary.

However, an attorney that focuses on wills and trusts might have additional strategies to maximize the financial impact of an annuity. For example, an annuity does not always have to be used as a payment contract over the life of an annuitant. If the annuity has been transferred to an irrevocable trust, payments might be deferred, allowing the investments to appreciate. After the annuitant's death, the balance in the annuity can pass to the trust (as the designated beneficiary) without going through probate.

These examples illustrate that estate planning can accommodate individual creativity. With the guidance of an experienced attorney, an individual can create an estate plan that is personal and distinctive.

Source: LifeHealthPro, "Variable annuities and trusts: The basics," Ed McCarthy, Feb. 25, 2015


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