Annuities and Estate Management

Effective estate management enables you to manage your affairs during your lifetime and control the distribution of your wealth after death. An effective estate strategy can spell out your healthcare wishes and ensure that they're carried out – even if you are unable to communicate. It can even designate someone to manage your financial affairs should you be unable to do so.

Keep in mind that estate management isn’t just about handling your financial affairs in the event of a health crisis or your passing. It is also key to maintaining financial health and security throughout your lifetime, including ensuring that can retire confidently and comfortably.

One of the most common foundations of a well-rounded estate management and retirement strategy is an annuity, which is a specific contract that is issued by an insurance company.

An annuity contract is divided into two phases:

  • The accumulation phase is the period in which you (the contract owner) makes payments (or a single lump payment) into the annuity contract. In exchange, you will secure a rate of return (either variable or fixed, depending on the contract) that will not be subject to taxation until you withdraw the funds. As a result, your investment can benefit from tax-deferred growth until you are prepared to withdraw.
  • The distribution phase begins when you elect to begin withdrawals. At this point, the annuity’s accumulated value will become an income stream to support you through the duration of your retirement. Depending on your specific financial planning, your annuity may be able to serve as a lifelong source of income.

Depending on your overall strategy for retirement, as well as your unique needs and preferences, it’s important to work with an experienced financial planner to select the type of annuity that’s right for you.

Types of Annuities

There are three primary annuity types, and our financial professional can help you choose the one that aligns with your individual needs.

Fixed annuities

A fixed annuity can be an excellent way to supplement your retirement plans, offering a guaranteed return over a set period of time. In order to invest in a fixed annuity, you will first pay the insurance company a single lump sum. The insurance company will then provide you with a contract that guarantees a rate of interest over a clear period of time.

The key characteristics of fixed annuities include:

  • Tax-deferred accumulation
  • The ability to select a guarantee period based on your investment goals
  • Guarantee of both principal and interest
  • Flexible income options (including systemic withdrawals, optional living benefits, and lifetime income streams)
  • Exclusion from estate probate
  • Variable annuities

As the name suggests, a variable annuity can take many forms. Like a fixed annuity, variable annuities are insurance contracts intended to support your long-term financial goals. Generally, when you decide to invest in a variable annuity, your selected insurance company will provide you with several different mutual fund-like investments, referred to as “subaccounts.” You have the freedom to consider a range of annuity subaccounts, choosing according to your target retirement year, investment goals, and comfort level with risk.

The defining characteristics of a variable annuity include:

  • Tax-deferred accumulation
  • Flexible income options (optional living benefit, systemic withdrawals, or lifetime income streams)
  • Guaranteed death benefits
  • Exclusion from estate probate

Income Annuities

Also known as “deferred income annuities” or “immediate annuities,” income annuities can provide you with a guaranteed stream of income that lasts a lifetime. While this type of annuity undoubtedly sounds promising, understanding how it works is vital to your financial success. Though not ideal for every investor, for those that want to maximize their income potential, income annuities can be an excellent choice.

When you invest in an income annuity, you will pay the insurance company a lump sum. In return, you will receive a guaranteed stream of income. However, once you have paid the sum, you will generally lose freedom to access it (with the exception of your arranged payments).

Additional Resources for Estate Management

Estate Management 101

A will may be only one of the documents you need—and one factor to consider—when it comes to managing your estate

Principles of Preserving Wealth

How federal estate taxes work, plus estate management documents and tactics.