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Your grandchildren deserve the best.
A lifetime gift annuity is a perfect way to provide your grandchild with an income for life, even after you die. It’s a great way to give your grandchild financial security without having to worry about them later in life.
In this post, we explain what a lifetime gift annuity is and how it works.
What Is A Lifetime Gift Annuity?
A lifetime gift annuity is a unique way of structuring a life annuity.
First, you buy a type of annuity called a joint annuity on your and your grandchild’s lives. With a joint annuity, you pay the insurance company a lump sum amount. In exchange, the insurance company will pay you an income for life until the latter of you and your grandchild’s death.
In most likelihood, you will pass away before your grandchild. The income will then continue uninterrupted to your grandchild until he dies, too, providing him an income for life.
In essence, you’ve provided a lifetime income for him. Hence the term, lifetime gift annuity.
How do you structure a lifetime gift annuity?
Here are the things you need to consider when buying a lifetime gift annuity:
Type of annuity: The annuity needs to be set up as a joint annuity with you and your grandchild as annuitants. You can defer payments by up to 10 years if you don’t want to provide the gift now. The benefit of deferring payments is that the income will grow to a more significant amount once it starts.
Ownership: You will want to own the annuity with your grandchild as the contingent owner. When you die, ownership will transfer directly to your grandchild and bypass your probate. This helps you avoid paying expensive probate and executor fees on your assets.
However, if your grandchild is a minor, you’ll want to avoid naming him as the contingent owner. That’s because an annuity is an insurance contract, and minors may not legally own one, depending on your jurisdiction. You can name a trusted family member as the contingent owner and change it when your grandchild reaches the age of majority.
Source of funds: You can only use non-registered funds to buy the annuity.
Annuitants: You and your grandchild.
Taxation: You have to pay tax on the interest part of the income while you’re alive. When you die, your grandchild will be responsible for paying taxes. For lower taxes, you can set it up as a prescribed annuity.
Payment frequency: You can have the annuity pay monthly or annually. Choosing your grandchild’s birthday as the payment date makes an incredible birthday present!
Amount: This is up to you! You can gift as much as you want or as little as you want. You can even target an income amount and work backward to see how large a deposit you need to generate this income.
For example, say you are a 65-year-old man, and you want the annuity to provide $5,000/year for your 18-year-old grandson. You will need to deposit $170,871 into the annuity to generate this income.
Who should consider a lifetime gift annuity
Here are the top 5 reasons why you should consider a lifetime gift annuity:
1. You want to provide a gift now. While you can leave a bequest in the will or by naming your grandchild as the beneficiary of your life insurance policy, he won’t get anything until you die. With a lifetime gift annuity, you can provide the gift now and in the future.
2. You want to provide an lasting gift. Most gifts are a one-time deal. By using the lifetime gift annuity strategy, you can provide a continuous stream of income for the life of your grandchild. Not many other gifts give you this kind of benefit.
3. You have money that you don’t need for your retirement. Remember, once you start an annuity, you can’t get your money back. You’re only entitled to the income that the insurance company pays you. It would be best to only use the lifetime gift annuity with cash that you don’t need for your retirement.
4. Your grandchild is a spendthrift. If you were to provide a one-time lump sum gift to him, he might spend it all at once! Having the annuity pay once a year puts a limit on how much he can spend at a time.
5. It doesn’t have to be a grandchild. You can use the lifetime gift annuity for your child, niece, nephew, great-nephew or niece, and more. Feel free to be creative and use the strategy for a loved one.
Final Thoughts
The future is uncertain. We want our children and grandchildren to have more than just memories of us when they grow up – we want them to know that they are cared for financially as well.
With a lifetime gift annuity, you can provide your loved ones with the peace of mind that comes from knowing you will always meet their needs no matter what happens down the road.
Give your grandchild financial security today by gifting them with a lifetime gift annuity!
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