Wealth & Risk Management Blog

William Byrnes (Texas A&M) tax & compliance articles

Posts Tagged ‘Life annuity’

The next hot annuity for clients is ?

Posted by William Byrnes on January 20, 2014


As clients have begun to feel the shifting winds with respect to the general economy, the annuity market is now undergoing its own type of evolution.

While products that tie fluctuations in an annuity’s cash surrender value to prevailing market interest rates may have seemed unacceptably risky to most clients just a few months ago, changes in today’s interest rate environment now have clients flocking to find these features.

Annuities with market value adjustment (MVA) features may be the next hot product for clients looking to beat the return on other conservative investment products, so read the full analysis of this emerging trend by Professor William Byrnes and Robert Bloink at Think Advisor !

ThinkAdvisor.com supports the professional growth and vitality of the Investment Advisory community, from RIAs and wealth managers of all kinds, to independent broker-dealer and wirehouse representatives. We provide unparalleled access to the knowledge, information and critical resources they need to succeed at every stage in their career, including professional development, education and certification, industry news and analysis, reference tools and services, and community networking opportunities.

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Court Eases Use of Annuities to Avoid Medicaid Spend-Down

Posted by William Byrnes on December 24, 2013


The winds are finally changing for Medicaid recipients, as evidenced by a recent U.S. Court of Appeals ruling that eases state-imposed restrictions on the use of annuities, reducing the need for your clients to spend down assets in order to become eligible for Medicaid assistance. The 6th Circuit ruling shut down the state’s attack on Medicaid-compliant annuities in this case, ruling in favor of clients who rely upon these annuities to provide sufficient income even if one spouse requires Medicaid assistance to pay for long-term care in a nursing home.

Based on this precedent, your clients may begin to experience a much more favorable Medicaid planning environment as they gain greater flexibility in the purchase timing and beneficiary designation requirements for annuity contracts that escape the Medicaid resource calculation formula, without jeopardizing an unhealthy spouse’s Medicaid eligibility.

Read the full analysis of Professor William Byrnes and Robert Bloink at Think Advisor !

ThinkAdvisor.com supports the professional growth and vitality of the Investment Advisory community, from RIAs and wealth managers of all kinds, to independent broker-dealer and wirehouse representatives. We provide unparalleled access to the knowledge, information and critical resources they need to succeed at every stage in their career, including professional development, education and certification, industry news and analysis, reference tools and services, and community networking opportunities.

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Using Deferred Annuities to Build Pension Plans for the Next Generation

Posted by William Byrnes on November 13, 2013


The most recent shift in the audience for deferred annuity products may come as a surprise to many advisors who are accustomed to selling these vehicles to older clients in pursuit of secure income late in life. Insurance carriers have taken steps to break free of this typical market, in many cases by changing product cost structures to appeal to an expanded (and much younger) client base.

As a result, advisors need to recognize that this new generation of deferred annuity products can be marketed even to clients who are in their 30s, 40s and 50s, erasing the common perception that most annuity purchasers are those stereo typically risk-adverse clients who have already retired. Younger generations have joined the market for secure income, which should have every advisor asking this question: How young is my next annuity prospect?

Read William Byrnes and Robert Bloink’s analysis of indexed variable annuities and how these product offerings may be attractive for certain of your clients at > http://www.thinkadvisor.com/2013/10/21/using-deferred-annuities-to-build-pension-plans-fo <

 

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Indexed Variable Annuities—a VA Product Curveball

Posted by William Byrnes on November 11, 2013


Persistently low interest rates may have created a challenging environment for annuity carriers in recent years, but many clients remain deeply skeptical about the prospect of returning to the more volatile equity markets. Indexed variable annuities (IVAs), while developed to help insurance carriers manage risk more accurately, can represent the perfect solution for these market-shy clients.

IVAs—known to some as structured annuities—offer clients an investment alternative that can provide the stability and many of the product offerings associated with annuity products but also the potential for participation in any equity market gains. However, they also offer substantial downside protection to cushion against potential investment losses.

Read William Byrnes and Robert Bloink’s analysis of indexed variable annuities and how these product offerings may be attractive for certain of your clients at > http://www.thinkadvisor.com/2013/10/14/indexed-variable-annuitiesa-va-product-curveball <

 

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The benefits to clients from the deferred income annuity sales boom

Posted by William Byrnes on September 24, 2013


When it comes to lifetime income planning, clients are always looking for the latest and greatest strategy to ensure that their income needs will be met during retirement.

Deferred income annuities are finally experiencing a dramatic growth spurt in the market, which has motivated insurance carriers to design products with features that allow each product to be tailored to meet the individual client’s needs. As the number of carriers offering deferred income annuities expands, a corresponding boost in client demand is expected — especially when clients discover that they can find the income features they have come to expect from an annuity product, but with a level of flexibility in required contributions and income options unique to the deferred income annuity market.

Read William Byrnes and Robert Bloink’s full analysis of this boom in the sales of deferred income annuities at LifeHealthPro: http://www.lifehealthpro.com/2013/09/11/the-benefits-to-clients-from-the-deferred-income-a

 

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Can Clients 1035 an Inherited Annuity?

Posted by William Byrnes on September 6, 2013


2014_tf_on_investments-mAnnuity products are one area in which trends in contract features are constantly changing as insurance companies endeavor to more effectively meet the needs of annuity investors and with the attendant problem that beneficiaries of inherited annuities could end up with antiquated investment products.

This constant evolution of investment trends may have your clients wondering what type of value their annuities will offer beneficiaries after their death. The IRS has just blessed a solution to this planning dilemma by allowing a beneficiary to exchange inherited annuities for another annuity product that more accurately reflects the beneficiary’s investment goals.

Read the complete analysis by William Byrnes and Robert Bloink at > Think Advisor <

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Reforming Annuities’ Image Problem: New Focus on Risk

Posted by William Byrnes on August 16, 2013


Today’s media coverage of the variable annuity market has focused on company buybacks and modifications to existing clients’ product guarantees—a prospect that has many clients feeling more wary than ever about annuity purchases.

Despite this, insurance companies have used the negative experiences of recent months as motivation to effect positive change in their annuity product offerings by offering clients real flexibility and risk management options.

read William Byrnes and Robert Bloink’s full analysis regarding annuities at > ThinkAdvisor <

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Planning Concept: Traditional Private Annuity in Trust Variation

Posted by William Byrnes on August 14, 2013


Provides an overview of private annuities in relation to financial planning.  Examines a new concept wealth managers are employing for their clients with regards to private annuities and trusts. 

The traditional private annuity is a transaction used by some wealth managers for clients whose circumstances permit. Generally a private annuity transaction occurs where the grantor transfers assets to a third party who pays the grantor an annuity, usually for the life of the grantor.[1]

When a trust is involved with a traditional private annuity, the common transaction may look like this:  “The owner of highly appreciated commercial real estate transfers the property to an irrevocable trust in exchange for the trust’s promise to pay an annuity for life. The present value of the annuity equals the fair market value (‘FMV‘) of the property. The trust then sells the property to a third party for a sale price equal to its FMV.” [2]  For additional discussion on private annuity contracts see National Underwriter Advanced Markets’ Private Annuity [3]

The idea behind wealth managers suggesting similar transactions “is that the original transferor can spread his large capital gain over life expectancy by using the irrevocable trust as an intermediary rather than selling directly to the third party (who is presumably unwilling to do a private annuity).” [4]

There are considerations wealth managers must take into account when discussing private annuities with their clients. These may include valuation methods, arms-length transaction consideration, and incidents of ownership. For a detailed discussion of the tax implications of private annuities, please see Tax Facts Q 41. How are payments received under a private annuity Taxed? [5]

It is often the case that a trustee, although not necessarily, will use “the sale proceeds to insure its annuity obligation by purchasing a commercial immediate annuity.” [6]

Planning Concept:  Some wealth managers have recently begun to structure private annuities for their clients slightly differently than the traditional method discussed above.  Here the idea is a private annuity contract issued from the trust to the grantor who pays valuable consideration for the annuity which carries with it a condition precedent or “contingency”.  The condition on the annuity could be the death of the grantor’s spouse.  The trustee may “reinsure” the risk with the purchase of life insurance from payment of the annuity in the event the condition takes place.[7]  Similar considerations with regards to private annuities should also be considered with private annuities that carry a condition.

In the event the grantor’s spouse does not die in the near future, the premiums paid for the private annuity could generally be considered income to the trust, which may be owned by a second generation.  If the spouse does die in the near future, payment of the annuity would create general gain taxation with a tax-free redemption up to basis. [8]


[1] Manning on Estate Planning. PLIREF-ESTPLN s 5:9, 5-30.  “§ 5:9 The Private Annuity”.

[2] New York Estate Planning. 33 ESTPLN 13.  “Maximizing The Planning Opportunities Of Private Annuities”. 2006.

[3] AUS Main Libraries, Section 2. The Federal Estate Tax, D—Annuities In The Gross Estate.

[4] Id.

[5] Tax Facts Q 41. How are payments received under a private annuity taxed

[6] Id.

[7] 33 ESTPLN 13

[8] PLIREF-ESTPLN s 5:9, 5-30; 26 U.S.C.A. § 1001.

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When Clients Get Lump-Sum Pension Offers, What to Advise?

Posted by William Byrnes on November 30, 2012


An increasing number of your clients are facing the novel possibility of choosing a lump sum payout from their pensions instead of the traditional annuity option.  See the full article at –http://www.lifehealthpro.com/2012/08/16/when-clients-get-lump-sum-pension-offers-what-to-a

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How New Deferred Annuities Provide Income Early in Retirement

Posted by William Byrnes on November 19, 2012


…insurance companies have begun building annuity products in a variety of shapes and sizes, and the latest crop of deferred income annuity products could pave the way for clients seeking to maximize retirement income security in the years leading up to retirement.  Read the full article on AdvisorOne – http://www.advisorone.com/2012/11/08/how-new-deferred-annuities-provide-income-early-in

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GAO Report Touts Annuities in Uncertain Retirement Environment

Posted by William Byrnes on March 26, 2012


Want some free marketing material for your annuities business? Look no further than the U.S. Government Accountability Office (GAO), which recently released a report touting annuities for their ability to provide retirement income sufficiency in an increasingly uncertain environment.

The GAO recommends that retirees delay their receipt of Social Security Benefits and either draw down savings and purchase an annuity or select annuity options from their defined benefit (DB) plan instead of electing to receive their benefits in a lump sum.

According to the GAO, the shift from defined benefit pension plans to defined contribution (DC) plans like 401(k)s necessitates a heightened focus on annuities and other options for guaranteeing income during retirement . And even if workers are saving more for retirement through their DC plans, they are still at greater risk than employees with DB pensions.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of annuities in Advisor’s Journal, see How Much to Allocate to Annuities: A Critical Analysis (CC 11-109) & Drama Over the “Drawbacks” of Annuities (CC 11-62).

For in-depth analysis of the taxation of annuities, see Advisor’s Main Library: A—Amounts Received As An Annuity & B—Amounts NOT Received As Annuities.

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Annuities: They Get No Respect

Posted by William Byrnes on November 17, 2011


We are all aware that annuities have a bad reputation in the media: High fees, high-pressure sales, and unsuitability are the predominating themes.

A recent Securities Litigation & Consulting Group white paper summarizes  the sentiments of the anti-annuity press, commenting that, “[a]nnuities stand out as the investment are most likely to be unsuitable since in virtually every instance, the investor would have been better served by mutual fund or a portfolio of individual stocks.”

Annuities are neither inherently “good” nor “bad.” It follows that rational evaluation of annuities can’t be conducted in a bubble—it must focus on their application.  Herein lays their value and the coup de grâce the industry and individual producers have been awaiting.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of annuities in Advisor’s Journal, see How Much to Allocate to Annuities: A Critical Analysis (CC 11-109).

For in-depth analysis of the income taxation of annuities, see Advisor’s Main Library: Section 19.2 Income Taxation of Annuities.

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Are Indexed Annuities Securities?

Posted by William Byrnes on November 8, 2011


Last year Congress finally concluded about whether indexed annuities are securities. As a security, indexed annuities were  subject to regulation by the SEC by including a provision in the in the Dodd-Frank Wall Street Reform Act that defines indexed annuities as insurance products outside the agency’s jurisdiction.

This year, some states are refusing to take Congress’s “NO” for an answer. In the latest action on the issue, Illinois Secretary of State Jesse White issued an order on May 24 indirectly concluding that indexed annuities are securities under Illinois law.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of indexed annuities in Advisor’s Journal, see Indexed Annuities: Still Insurance (CC 10 42).

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How Much to Allocate to Annuities: A Critical Analysis

Posted by William Byrnes on October 4, 2011


A commonly known characteristic of annuities is providing retirees retirement income security. However, a more complicated aspect is deciding exactly how much of a retiree’s nest egg should be allocated to an annuity to reduce the person’s probability of outliving their retirement income.

The Employee Benefits Research Institute takes some of the guesswork out of allocation in a study released this month. The study analyzes the impact of longevity and immediate annuities on retirement income adequacy. The study finds that the “optimal level of annuitization and asset allocation that would give a desired level of confidence that people will have enough retirement income, based on the three different types of risk: investment income, longevity, and long-term care.”

The study’s results offer a prescient guide for advisors looking to maximize their client’s retirement success through annuities. Although parts of the study are quite technical, briefly reviewing the results can be enlightening.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of annuities in Advisor’s Journal, see Drama Over the “Drawbacks” of Annuities (CC 11-62).

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Drama Over the “Drawbacks” of Annuities

Posted by William Byrnes on July 27, 2011


A recent Businessweek article highlighting what it calls the “drawbacks” of annuities is the latest in a long line of articles panning the financial products. But do annuities—especially variable annuities—endure justified scrutiny, or are annuities just an easy target of the mainstream media? And, where annuities are the right choice for your clients, how can you counter the negative press to help them make the right investing decision? Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

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Section 1035 Exchanges Are Useful in a Down Economy: A Review

Posted by William Byrnes on November 19, 2010


Why is this Topic Important to Wealth Managers? Section 1035 exchanges are known for deferral of a taxable gain through a step-up in basis into a new contract.  The tax benefits granted by Congress are certainly advantageous, however, in an uncertain economy Section1035 exchanges also offer wealth managers the opportunity for new business.  Because of the potential little to no out-of-pocket expense associated with these transactions, many wealth mangers are currently implementing this advantageous exchange during sluggish times. 

It is often the case that policy owners’ expectations change during the life of a contract.  It makes sense to re-evaluate objectives to ensure they’re still aligned with client goals.  Section 1035 exchanges are one area where this practice is commonplace.

Generally, Congress allows owners of life insurance and annuity contracts to exchange that contract for another, similar or related insurance or annuity contract without recognizing any unrealized gain which may have accrued within the policy, so long as the insured stays the same.

Read the entire article at AdvisorFYI.

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The Impact of the Small Business Jobs and Credit Act

Posted by William Byrnes on September 30, 2010


President Obama signed the Small Business Jobs and Credit Act of 2010, H.R. 5297, on Monday, September 27, establishing an allowance for partial annuitizations of annuity contracts from January 1, 2011.  In the coming weeks, the Advisors Journal will include in-depth examinations of the provisions of the Small Business Act that are of the most interest to advisors and insurance producers, such as the partial annuitization of annuity contracts and the Roth Conversion Extension to Employer Accounts.

In this AdvisorFX exclusive analysis, we summarize the impact of the Act’s other major provisions.  Please read the article via your AdvisorFX subscription at AdvisorFX (or sign up for a free 30 day trial).

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Planning Concept: Traditional Private Annuity in Trust Variation

Posted by William Byrnes on September 23, 2010


The traditional private annuity is a transaction used by some wealth managers for clients whose circumstances permit.  Generally a private annuity transaction occurs where the grantor transfers assets to a third party who pays the grantor an annuity, usually for the life of the grantor.

When a trust is involved with a traditional private annuity, the common transaction may look like this:  “The owner of highly appreciated commercial real estate transfers the property to an irrevocable trust in exchange for the trust’s promise to pay an annuity for life. The present value of the annuity equals the fair market value (‘FMV‘) of the property. The trust then sells the property to a third party for a sale price equal to its FMV.”  For additional introductory discussion on private annuity contracts see AUS Main Private Annuity

Planning Concept:  Some wealth managers have recently begun to structure private annuities for their clients slightly differently than the traditional methods.  For a discussion and analysis, please see AdvisorFYI

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