Some wealth advisors flip pink, white or grey on the considered their high-net-worth purchasers shopping for annuities.
For prime-net-worth purchasers, the priority is that annuities create taxable earnings. The very last thing most wealth advisors need is to extend their purchasers’ tax payments.
Jack Elder, a tax legal professional who serves because the senior director of superior gross sales at CBS Brokerage, believes that wealth advisors ought to think about using speedy annuities to purchasers and their households moderately than tapping invested property for the money wanted to cowl their “MUG”: mortgage, utility and grocery prices.
If purchasers have extra protected earnings from sources resembling pension plans, Social Safety and annuities, “they don’t have to eat their property beneath administration to assist their life-style,” Elder mentioned in an e mail interview. “If they permit their managed property to compound with out spending them down, legacy property are elevated.”
What it means: Even HNW purchasers want a stream of earnings they will use to pay the payments.
Single-premium speedy annuities: A single-premium speedy annuity, or SPIA, is a product that converts one large pot of money right into a stream of assured earnings.
The bucket: For some HNW purchasers, Elder mentioned, placing annuities within the “bucket” for the mounted earnings a part of the portfolio can generate the regular earnings the purchasers have to cowl prices with out raiding the legacy property.
“By mitigating the necessity for big portfolio withdrawals, a direct annuity can enable a household’s wealth to develop extra effectively,” Elder mentioned. “This progress interprets into a considerable enhance within the worth of property handed on to heirs.”
The evaluation: Elder mentioned rich advisors have to work fastidiously with insurance coverage advisors and tax advisors to see whether or not an annuity, or some other possibility, is the best answer for a given HNW consumer.
The evaluation ought to embody the consumer’s private monetary targets, asset combine and long-term goals, he mentioned.
“There isn’t a ‘one-size-fits-all’ answer for HNW people and their households,” he mentioned. “Conversations between advisors and purchasers on speedy annuities contain loads of subtleties. All of it comes all the way down to the mathematics, guaranteeing the right quantity of funds are allotted to a direct annuity that may assist enhance a HNW particular person’s AUM 12 months over 12 months, via their retirement. If the mathematics isn’t proper, this funding instrument might be counterproductive.”
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