How Annuities Can Take Care of Your Family

Retirement planning isn't always just about you.

For many people, the bigger question is:

What happens to my family when I'm no longer here to take care of them?

Annuities can play a role in answering that question because they're contracts that can establish specific financial guarantees for spouses, children, grandchildren, and other beneficiaries.

The goal isn't necessarily to leave every dollar inside an annuity. It's to determine which financial responsibilities you want handled contractually.

Key Takeaways

• Annuities can help provide financial certainty for spouses and other family members.
• Joint lifetime income can continue for a surviving spouse.
• Annuities can be incorporated into estate and trust planning.
• MYGAs can provide principal protection and tax-deferred accumulation.
• Lifetime income can potentially be established for children or grandchildren.
• Annuities may also play a role in legacy and certain long-term care strategies.

The PILL Framework for Your Family

Annuities generally solve four primary contractual objectives using the PILL framework:

• Principal Protection
• Income for Life
• Legacy
• Long-Term Care

Those objectives don't have to apply only to you.

They can also be considered in the context of your spouse, children, grandchildren, or other people you want to financially protect.

Protecting a Spouse With Lifetime Income

One of the most straightforward family uses for an annuity is providing guaranteed lifetime income for a spouse.

A lifetime income annuity can be structured jointly so that payments continue for as long as either spouse is alive.

If one spouse dies first, the surviving spouse can continue receiving the contractual income according to the payout structure selected.

For a spouse who doesn't want to manage investments or make complicated financial decisions, predictable income can provide a level of financial certainty.

Joint Lifetime Income Can Continue After You Die

Joint-life annuities are specifically designed to cover two lives.

This is different from simply naming your spouse as a beneficiary.

If your goal is for an income stream to continue after your death, the contract should be structured to accomplish that objective.

Depending on the payout option selected, beneficiary protections can also be included so that remaining contractual value passes to the family rather than being forfeited to the insurance company.

Using Annuities Within a Trust

Annuities can also be incorporated into broader estate and trust planning.

For example, a trust can contain instructions directing that certain inherited assets be used to purchase lifetime income for beneficiaries after your death.

Instead of leaving only a lump sum, part of an inheritance could potentially be converted into a pension-like payment designed to continue for the beneficiary's lifetime.

This type of planning should be coordinated with qualified estate planning, tax, and legal professionals.

Creating Lifetime Income for Adult Children

Parents may also want to establish future income for their children.

Rather than providing an entire inheritance as a lump sum, a portion of the assets could be used to create guaranteed lifetime income.

The objective isn't necessarily maximizing the inheritance.

It's establishing a contractual income stream that the beneficiary cannot outlive.

For some families, that type of financial certainty may be an important component of the legacy plan.

Can You Establish Annuity Income for Grandchildren?

Annuities can also be structured around multiple generations.

For example, certain lifetime income arrangements can involve a grandparent and grandchild.

Because age and life expectancy affect lifetime annuity payouts, structuring these arrangements requires careful planning.

Taxes, ownership, beneficiaries, and estate planning considerations should all be reviewed before implementing a multigenerational annuity strategy.

Annuities and Special Needs Planning

Families with a special needs child or other dependent may have additional concerns about what happens after the primary caregiver dies.

Annuities can potentially provide contractual income as one component of a larger plan.

However, special needs planning can involve complicated legal, tax, trust, and government-benefit considerations.

Any annuity strategy in this situation should be coordinated with the appropriate attorneys, tax professionals, and other specialists.

MYGAs for Principal Protection

Taking care of your family doesn't always mean creating lifetime income.

Sometimes the objective is simply protecting principal.

A Multi-Year Guarantee Annuity (MYGA) provides a guaranteed interest rate for a specified period.

MYGAs can be funded with qualified or non-qualified money, depending on the situation.

With non-qualified funds, interest can grow tax-deferred inside the contract until distributed.

That can make MYGAs one option for families looking to protect a portion of their assets while accumulating money for future needs.

Annuities as Part of a Legacy Strategy

Legacy planning doesn't necessarily mean buying a product marketed specifically as a "legacy annuity."

Instead, determine what you want to happen financially after you die.

Do you want your beneficiaries to receive a lump sum?

Do you want them to receive lifetime income?

Do you want a surviving spouse to have predictable monthly cash flow?

Do you want principal protected until a future date?

Once those questions are answered, the appropriate contractual structure becomes clearer.

Long-Term Care and the Family

Long-term care expenses can affect more than the person receiving care.

They can also affect spouses, children, and the overall family estate.

Certain annuity products can provide benefits related to long-term care needs, including simplified-issue and guaranteed-issue solutions in some circumstances.

These products should be evaluated based on the specific contractual benefits they provide rather than assuming every annuity offers traditional long-term care insurance.

Think About What Happens After You're Gone

Estate planning often focuses on who receives your assets.

But there's another question worth asking:

What should those assets actually do after you're gone?

A lump sum provides flexibility.

A contractual income stream provides predictability.

Principal protection provides another type of certainty.

There isn't one universally correct answer. The appropriate structure depends on your family and what you want the money to accomplish.

Use the Least Amount Necessary

You don't need to place your entire estate into annuities to create contractual guarantees for your family.

Identify the specific financial need first.

If your spouse needs a certain amount of guaranteed monthly income, determine how much premium is necessary to produce it.

If you're establishing lifetime income for a child, determine the appropriate amount for that objective.

The remaining assets can continue serving other purposes within your estate.

Coordinate Annuities With the Rest of Your Estate Plan

An annuity shouldn't exist in isolation from your broader estate plan.

Depending on the strategy, coordination may involve:

• an estate planning attorney
• a CPA or tax professional
• a fee-only financial planner
• trust documents
• beneficiary designations

The annuity provides the contractual guarantee, but the surrounding legal and tax structure needs to be appropriate as well.

Where to Compare Annuity Guarantees

Use our annuity calculators to compare contractual guarantees from multiple insurance companies.

Whether you're considering lifetime income for a spouse, future income for another family member, or principal protection, comparing carriers can help determine how much money is required to accomplish the specific objective.

The Bottom Line

Annuities can help take care of your family by turning part of your assets into contractual guarantees.

That might mean joint lifetime income for a spouse, principal protection through a MYGA, lifetime income for children or grandchildren, or incorporating an annuity into a broader legacy plan.

The important question isn't simply how much money you plan to leave behind. It's what you want that money to accomplish for your family after you're gone.

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