Background: Divorced and retired female age 66 had significant cash assets invested in non-qualified annuities. Currently in a zero income tax bracket. She needed income in four years when her alimony ends. She wanted to provide a larger portion of her estate to her daughter as ex-husband had given the family business to the son. She had minimal money in an existing IRA.
Goals: To review existing assets with objective of increasing income, protecting against nursing home risk and providing more for her daughter.
The Results: Transfer non-qualified fixed annuities to non-qualified variable annuity to obtain guaranteed living and death benefits. Convert IRA to a Roth while in the zero tax bracket to create tax-free growth potential. Draw income from non-qualified annuities to pay taxes in zero bracket.
Move funds from bank (earning 1%) to a Universal Life Policy with a Long Term Care rider (earning 0%). The policy can be cancelled at any time for full refund of the premium paid. Should long term care be needed, policy will pay about five times the premium paid. Should death occur, the policy will pay about twice the premium paid.
Make the daughter the beneficiary of both above accounts thus moving the vast majority of estate assets to the daughter while allowing other assets to be divided equally via her will.
Bottom Line: Individual will have equal or more income for life once alimony ends. Daughter will receive bulk of estate. Risk of long term care need harming the assets is reduced by the Universal Life contract.
This is a hypothetical example for illustrative purposes only. The experience of this client may not be representative of the experience of all clients and is not indicative of future results. Any tax advice contained herein is of a general nature and is not intended for public dissemination. Further, you should seek specific tax advice from your tax professional before pursuing any idea contemplated herein. This advice is being provided solely as an incidental service to our business as financial planner. Securities offered through ValMark Securities, Inc. Member FINRA, SIPC. Financial Planning and Investment Advisory Services offered through B & E Investment Advisers, Inc. Business & Estate Advisers, Inc. and B & E Investment Advisers, Inc. are separate entities from ValMark Securities.
Retirement Income Fears & Strategies
