Using Annuities To Help Reduce Estate Taxes

Did you know that immediate annuities could help de-rail estate taxes? Yes…it’s true! If your client has an estate large enough to incur estate taxes, an immediate annuity – used in conjunction with life insurance – can be an effectively help minimize estate taxes.

By purchasing an immediate annuity, your client can fund a life insurance policy, which is purchased by an Irrevocable Life Insurance Trust (ILIT).

 

Here is how it works.

• Your client must first establish an Irrevocable Life Insurance Trust where the trustee of the ILIT applies for a life insurance policy. If your client is married, a second-to-die life insurance policy is purchased, or if your client is single, a single-life insurance policy can be purchased.

• Upon approval of the life insurance policy, your client then purchases an immediate annuity with a life-only benefit option, which makes annual payments to the ILIT for fund premium payments of the life policies.

• When your client dies, the beneficiaries of the ILIT will receive the death benefits of the life insurance policy. Since the death benefits of the life policy are outside the estate, they pass free of estate taxes.

Your client has effectively taken money out of their estate by purchasing the immediate annuity with a life-only benefit option. When your client dies, the annuity’s value is zero, thereby reducing the tax liability on the estate. In addition, the death benefits from the life insurance policy pass to the beneficiaries free from estate taxes. These proceeds may then be used to offset taxes on the remainder of the estate.

Shore Benefits Brokerage. PO Box 1. Allenhurst. NJ 07711
Toll Free: 800-777-1459 / Local: 732-531-8339 / Fax: 732-517-1079 / Cell: 732-233-9585