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Policy Matters



We’ve all known (at least) one. That family member or friend who just can't seem to manage their money and make smart financial decisions. What happens if that spendthrift gets a windfall inheritance? We’ve had a number of advisors with clients who have expressed that concern about inheritances, either as the beneficiary of an annuity or the executor of a will that states you must purchase an immediate annuity for a surviving spouse/partner/child. Until recently, the only options consisted of:

  • Constant monitoring of the trust to ensure the beneficiary didn’t sell or assign the annuity proceeds. If you’ve ever been sick at home and watched daytime TV, you’ve seen commercials for Judge Judy and Social Security attorneys with firms that will buy annuity streams for cash lump sums TODAY! (yes, that’s yelling). They would sell it to a JG Wentworth-like company for pennies on the dollar. Who’s the big winner here? JG is. This kept the trust alive for tax reporting every year until the beneficiary passed away. And that can be decades.
  • If the annuity owner was the spendthrift client, he or she could just surrender the annuity within the 30-day free look and get the cash values. Once again going against the wishes of the annuitant.

One insurance company has created a solution to help your spendthrift clients or clients who create a will stating that the beneficiary must be paid either in installments or within the annuity. It makes the inherited annuity non-saleable, non-cancelable, and non-transferable.

Here’s a recent story of how it helped one advisor’s client:
The beneficiary to the trust was a 27-year-old male. The trustee was his mother who said “most 27-year-olds aren’t capable of making smart financial decisions with a sum of money this large, especially in one lump sum.” She feared her son would not make smart financial decisions with the money, and thought an immediate annuity would be the answer for him.

She contacted her advisor to help her find an annuity that would be appropriate for her son. That’s where Jerry Skapyak, LLIS’s annuity specialist, came in.

“The problem with using most annuities to provide income to a spendthrift is that they can be sold,” Jerry told the advisor. “There is one company, though, that has a restricted immediate annuity that does not allow a change of ownership. This will prevent your client’s son from selling the annuity for a lump sum and allow him to continue receiving the income stream.”

The advisor developed a plan of action with his client: give the son a small lump sum to buy a much-needed pickup truck, and put the rest into the annuity. So the son got what he needed at the moment, and his mother got peace of mind that her son would be provided for for many years to come.

So if you're ever counseling the executor of a will or trust, or helping a client to secure a legacy for loved ones, there is a viable option. Jerry is here to walk you through it.


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(We recommend low-load permanent life insurance and annuities when possible)

(Not all policy types available in all states)

For a list of current providers, visit the Advisor Tools section of our website and click on "Insurance Companies We Work With".

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