In this Section:

Annuities Can Help Boomers Consider Wealth Transfer Plans

The oldest baby boomers are 72 and likely retired or approaching the next chapter in their lives. After being in the workforce for more than four decades, many baby boomers have spent their working years amassing wealth. Now, as their children start buying homes and beginning their own families, they may be looking to pass on their financial legacies to future generations.

Now can be a good time to connect with boomers about the benefits of a wealth transfer strategy. Positioning a fixed annuity as a wealth transfer vehicle is a great way to help clients ensure they are leaving their lifetime of savings to their heirs as intended.

Here are key questions to anticipate from clients and answers to consider when talking about the benefits of purchasing a fixed annuity as part of a wealth transfer strategy.


Why do I need a wealth transfer plan?

For some clients, a wealth transfer strategy has probably crossed their mind, but they may think they have several years before a formalized plan is needed. Others may not see the need to create a wealth transfer plan because they have talked to their spouse and children about their intentions.

Both of these are common scenarios you will likely hear when speaking with clients. In these instances, it’s important to remind clients that an unexpected event can happen to anyone at any time, and that during that time of loss, having to make big decisions about finances could be an added burden for their loved ones. Creating a well-thought-out plan of who the beneficiaries are and how they should receive funds can save their loved ones additional family stress and decision-making during an already challenging time. 


Why should I use a fixed annuity?

Although annuities typically are seen as a means to grow assets and distribute them during retirement, a fixed annuity also is a sound option for transferring a client’s wealth to loved ones.

A key benefit of a fixed annuity is that the money isn’t taxed until a distribution is made. You can work with your clients to determine a preselected payment stream for their loved ones. With this approach, there is no large tax burden for the heirs to shoulder as they may have with a single, large lump-sum distribution.

Additionally, using a fixed annuity for wealth transfer offers clients the option to predetermine a plan for how the beneficiaries receive the proceeds. This is a restrictive endorsement option that can help clients control their wealth from the grave. This option can help with beneficiaries who may not be ready for the responsibility that comes with larger sums of money.

Knowing their loved ones won’t become overburdened by taxes and that clients can manage how the money is distributed can help clients understand why a fixed annuity can be a responsible vehicle for passing on their wealth.


How do you name the beneficiaries?

After clients have decided to go with a fixed annuity for their wealth transfer strategy, designating beneficiaries is the next step in the process. Although designating the beneficiaries may seem like an easy decision, it is important that clients approach the process with a long-term perspective.

Remember to ask the following questions to help clients feel comfortable about who receives their money and what type of access the beneficiaries will have.


» Who would you like to include on your list of beneficiaries?

Unfortunately, we all have heard stories where wealth transfer plans were not predetermined and families were in disagreement about the financial distribution of a loved one’s funds. Determining beneficiaries can help eliminate any potential issues and set the stage for wealth transfer and the client’s desired financial legacy.

As part of the conversation, remind clients that while they feel very confident about their designated beneficiaries now, it will be important to review the list with clients periodically, as family dynamics and circumstances can change.

Ask clients whether designations have changed in light of divorce, remarriage or death to avoid payments going to the wrong people due to out-of-date listings. Also, during this time, it’s important to determine the designation percentages are accurate and the payout strategy for disbursing proceeds still is practical for each beneficiary.


» Are you interested in predetermining how proceeds will be distributed to beneficiaries?

Many fixed annuities have restrictive endorsement options that provide clients with control from the grave. This option can help with beneficiaries who may not be ready for the responsibility that comes with the money.

For example, Betty, a boomer widow, has three children and wants to start thinking about how they will inherit her assets at her death. She has some money in the bank and some in annuities, and her liquid net worth is $750,000. She needs income from her investments to supplement her Social Security and wants liquidity in case she needs nursing home care in the future.

She knows that two of her children would be able to handle a lump sum of benefits responsibly, but she is concerned about her third child, who is constantly asking her for money and taking out loans.

To help accommodate Betty’s needs, you could offer a growth annuity with a nursing home waiver with monthly interest payments and a restrictive endorsement. This wealth transfer option would give Betty full control over her interest and principal during her lifetime, while the restrictive endorsement could help ensure lump sums are given to her two responsible children and a designated annuity payment is provided to her spendthrift son. With this wealth transfer plan, Betty could have peace of mind knowing her hard-earned savings would be used by all three of her children as she intended.


» Have worst-case contingencies been considered and covered? 

It’s important that clients do more than designate a primary beneficiary. Help your clients understand the importance of contingent beneficiaries, too. When clients fail to include this information, they risk having proceeds go to their estate, perhaps entangling beneficiaries in a long legal process. This probably is not what the client would have wanted.

Answering these common questions and helping your baby boomer clients understand the benefits of a fixed annuity wealth transfer can help ensure their hard-earned savings are used as intended by the intended. Working with your clients to create a wealth transfer strategy for their intended heirs can help provide peace of mind that their money will be in the right hands.  


Rich Lane is the director of individual annuity sales and marketing for Standard Insurance Co. He has been in the fixed annuities industry for more than 17 years, with an emphasis on product and distribution development for brokerages, banks and broker/dealers. Rich may be reached at [email protected] .

More from InsuranceNewsNet