Annuities for Inheritance

Episode 4 June 10, 2021 00:28:18
Annuities for Inheritance
Annuity Straight Talk
Annuities for Inheritance

Jun 10 2021 | 00:28:18

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Show Notes

Bryan Anderson, founder of Annuity Straight Talk, speaks with Ashok Ramji, a financial consultant with TOP Planning LLC, an independent asset protection and retirement income planning firm serving retirees and pre-retirees alike. In this episode, our hosts dive into a newsletter that Bryan recently posted.

They introduce Charlie, whose situation inspired the newsletter, and share how the newly proposed American Families Plan might affect inheritances. Ashok highlights the advantages of working with the Annuity Straight Talk team, and then Bryan explains why he continues to write newsletters.

Bryan and Ashok also present some annuity options that are available for non-spousal beneficiaries while defining the difference between qualified and non-qualified money.

What You’ll Learn in This Episode:

 

Key quotes: 

 

Call Annuity Straight Talk at 800-438-5121 or schedule a call at AnnuityStraightTalk.com

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Episode Transcript

Speaker 0 00:00:05 This is annuity straight talk since 2008, your host Brian Anderson has helped clients nationwide navigate the complex market for annuities with Brian's assistance. Hundreds of clients have achieved a profitable and secure retirement. I would know because Brian has answered many of my questions concerning annuities and retirement planning so that you can benefit as well. Let's get started. Here's Brian, Speaker 1 00:00:47 Welcome everyone to the annuity straight talk podcast. My name is Brian Anderson, founder creator, and envisioner of all things AST. I know a lot of things. I do not know everything and here to fill in the gaps to expand my knowledge and yours is my co-host. Uh, showc Romney. Go ahead. Speaker 2 00:01:09 Those are big shoes to fill. So I don't know if I'm the right guy, but I'll do my best. Speaker 1 00:01:12 Hey man, if I thought I knew everything, I wouldn't need you. Right. But I need yet because he's the voice of reason in this insane world we have today. Speaker 2 00:01:20 I try to be, and it is insane. Speaker 1 00:01:23 It is. Yes, absolutely. So what do you think we should talk about today? A show? Speaker 2 00:01:26 Well, first let me ask Brian, we hear the birds chirping. It's a beautiful day in Montana. We're blessed with beautiful weather out here in Washington state as well. Uh, what is that backdrop? Where are you right now? Speaker 1 00:01:39 So I want to say I'm a blessed individual and uh, although I'm a modest man myself, I do have a family. I think we talked about my uncle who got me into this business and I'm on the shores of Flathead lake courtesy of him and Flathead lake, Northwestern, Montana, beautiful spot. And when we finished today, I'm going to probably throw on some swim trucks and go jump off the dock. Cause it's a beautiful, it's 85 degrees in Northwest Montana and uh, very fortunate to have this opportunity. And of course I asked my aunt if it was okay and she said to use this as a studio, she said, absolutely, you can go there anytime. So I come down to record the podcast with the show and hopefully you will join me at some point this summer I will. Speaker 2 00:02:22 And the only thing I'd seize on is he said probably, and I don't think you're going to go for a dip alone. Right. Speaker 1 00:02:28 I got the puppy. Yeah. And see if he wants to, I got Rambo. Yeah. And of course, unfortunately Rambo likes to chew on cords. So he's in his candle right now. I'd love to introduce him to everybody, but there's a little too, there's too many things for him to play with. So maybe one of the next times when I get a bit more organized, I'm sitting back in the sunlight. So you can see me because my light wasn't working and I'd rather be in the shade, but this will work for now and we'll do what we can. Nobody's perfect. Right. That's Speaker 2 00:02:57 Right. I know that from the last podcast, my video went out. So let's talk, let's talk a little bit today about a new cities for inheritance. You wrote something very recently on annuity, straight talk. And by the way, if you like the recordings that you hear, hear here, be sure to subscribe or make sure that you can get a regular access to these podcasts on annuity, straight talk.com. You wrote an article called annuities for inheritance. Could you set up this article? Brian, tell us what were your thoughts when you were putting this together? Speaker 1 00:03:29 Yeah, sure. And I'm, I'm always kind of thinking about, again, I call it for lack of a better term. I call it frequently asked questions, things that people are concerned with, wonder about, I've met several people in the past who inherited an annuity from a parent or a loved one. For some reason, people would call and ask, what do I do with this thing? And that's kind of how and show up. You'll understand a lot of the things we learn. We learn through experience in this business where we're presented with an opportunity and we have the connections and the skilled people that can educate us. And so what we've done is over years have educated ourselves on these topics. And we want to share that with other people who are considering this path for retirement. So when I look at annuities for inheritance, maybe I arrogantly say like, if you work with me, I typically will find ways to make more money with an annuity in a lot of cases. That means there's going to be some leftover when you pass away and you need to know what, how that's treated and what your beneficiaries or your heirs are going to see from that. So, and I think that comes with a show, uh, that wasn't that the recent story that I kind of highlighted in the newsletter, Speaker 2 00:04:34 Correct. And this gentleman, Charlie older gentlemen, I think he's 83. First of all, he's single, not by choice, but because he lost his wife. So everything we discuss here is from the perspective of somebody who doesn't have a wife and they're considering providing some legacy to beneficiaries who are not the spouse. And let's also talk a little bit about legacy. These are one of the most important retirement keys as we discuss in annuity straight talk. Correct? Speaker 1 00:05:06 Yeah. And that's, we, we have the five keys of retirement, which we're not going to use this as a forum to repeat all of those. But key number five is legacy. I believe it's a, it's a personal choice. Some people want it, some people don't and whatever you decide to do with your money, a show, if you want to leave a legacy, you can, and you know how to do that. But yeah, this is kind of one of those parts where, you know, when you know, Charlie came in and really what inspired him to start looking at annuities was the fact that there's a new bill proposal in Congress, a show. Do you want to talk about that one a little bit? Yes. It's the Americans. You're the securities guy. Yeah. There's Speaker 2 00:05:45 Some legislation called the American families plan. It's been proposed by president Biden. They are deliberating it in the Congress and ultimately if they pass it in the Congress, it goes to the, for his signature. But there are some provisions in there. One of them include getting rid of what's called a step-up in basis. So whenever we have certain types of securities that are in a, what we call non-qualified account, they are taxable right now. If somebody like, for example, my mom, she had a brokerage account, she had purchased some securities. She passed away unexpectedly as of her date of death, the cost basis of those stocks moved up from when she had purchased a stocks up to her date of death. So we as her non-spouse beneficiaries, I have siblings. We all inherited those assets, but the cost basis was as of the date of death, the sale price was also very close to the date of death. There was a few months away. So we ended up not having very much in the way of taxable gains had. We had to pay taxes on the gains from when she bought the stock to where years later we sold a stock. We, as non-spouse beneficiaries would have had a bigger tax bill and less inheritance. And that is what is being currently proposed in the American family's plan is to get rid of this step up in basis because Speaker 1 00:07:22 They want more money, right? That is correct. They've got big spending plans and there's gotta be a way to pay for it. And in simple terms, if you buy a stock for 50 bucks and you die, when it's worth a hundred, as things have been in are currently, your children will inherit that assuming it's your children, in most cases will inherit that at a hundred dollars. So if they sell it at a hundred dollars, they pay no taxes. So it's been four years has been one of the favorite ways to pass assets on maybe dividend paying stocks, where the dividends support retirement income, but they slowly appreciate over time. And the children get a nice tax break by getting the step up in basis. Speaker 2 00:07:59 So we have political risk right now because we're trying to figure out whether the American families plan goes through and all of the proposed ways, somebody like Charlie is also considering market risk, where he's got a good amount of assets. And he's looking at a fixed deferred annuity to protect that asset and pass that along his legacy, right? We're not talking about. Speaker 1 00:08:26 And so that annuity, no, it's not an income annuity. He just wants a deferred contract. The market's high, uh, he had been in the market because of the step up basis thinking, oh, this is a great way. He's got a pension and social security. He's got long-term care insurance in place. All of his Medicare supplements he's well set up financially. He's really just managing his money to pass it on to his three children. And so knowing that, and it should be said that this elimination of the stepped up basis only, only applies to larger accounts. I think over a million dollars, but as taxes go, we like typically they start out at something that most people don't notice. And then they expand to include everyone. So everybody gets to, everybody gets to join in on that. So maybe you don't have a million dollars to pass onto your kids. You might have a hundred thousand or 50,000, but just, it doesn't mean you shouldn't pay attention to this because in all likelihood, if that passes, then you're going to see that level drop and other people are going to be included in it. Well, Speaker 2 00:09:31 You make a comment by the way, there's a quote in your article where you say, when the 16th amendment to the us constitution was passed to allow for income taxes, it only applied to people making more than $4,000 per year. That was in 1913 and no one paid attention to it because that was more money than the average person could ever dream to make over time, personal income rose exponentially, more than the standard exclusion draw your own conclusion on that. So that's actual example of where these social programs usually start small and then they widened the net. And I think the same thing happened with social security. They changed the rules and they widened the net. Speaker 1 00:10:13 Exactly. And it's the same thing with IRAs and 401ks and four 50 sevens and 4 0 3 BS and TSPs. It's just, they make an exception to the rule and then they slowly include everybody in. So that Speaker 2 00:10:27 Is where in your article, you take us to one type of source of money, which are qualified plans, qualified money. And you talk about things like 401k 4 0 3 B uh, Brian, could you tell us a little bit about how the rules have changed with qualified money? Say over the past few years? Speaker 1 00:10:46 Yeah. So this was at the end of 2019. If you had an IRA and again, I use the general term IRA because they're all tax qualified the same way. It's similar to a 401k 4 0 3 B TSP for federal workers, a 4 57 for, I think doctors, a key Oak plan, maybe all that stuff, all that stuff is an IRA essentially. And so I just use the term IRA, but anybody who has something else, that's not technically an IRA could understand this, but at the end of 2019 with the secure act, a lot of my clients have been happy that they extended the required minimum distribution age from 70 and a half to 72. But with that, they eliminated some of the inheritance provisions for an IRA. And it used to be that you had three options where you could either your heirs could either take a lump sum and just cash it out and pay the taxes, all that stuff. Speaker 1 00:11:42 Or they could take equal distributions over five years to maybe minimize or to drop taxes a little bit, or they could take a lifetime. It was called a option where they could stretch the distributions from an inherited IRA over the life expectancy. So if you buy one at 65, or if you have an IRA at 65 and you pass away at 85 and your son or daughter is 57, when you pass away, they could distribute that IRA over their own life expectancy, which might, which would probably be on the actuarial scale about 25 years. So instead of having a huge tax hit upfront, they could take minimal payments over time. And in a lot of cases, I have a lot of clients who have inherited IRAs who are doing the stretch because they started it before the end of 2019. But it's really a way for your heirs to turn it into a retirement income stream of their own. And so what happened with the secure act is they got rid of the stretch option and the five-year equal pay option is also not a relevant. Really, all they say is you can either take a lump sum or, but you ha you can take a lump sum. You can take payments out of it, but by 10 years you have to have liquidated the entire annuity or an entire IRA. So there's fewer options for a beneficiary with an IRA now, Speaker 2 00:13:04 And we're sharing just general information. Again, none of this is a tax advice. Always make sure that you see a licensed tax professional for this, but while you're here at annuity straight talk, make sure you go to the website, annuity straight talk.com, dial 804 3 8 5 1 2 1 hit the green schedule, a call button. And we can talk about if you have qualified money and you're trying to figure out what are your options now, post secure act post, and there's secure act two, that's being contemplated. So the rules are constantly changing. And that's why it's important to work with someone knowledgeable. And again, I think Brian is, you've said if there's someone in your area that you would like to work with, the advantage of the annuity straight talk team, is there our team of advisors that you're working with all across the country, right? Speaker 1 00:13:49 And we are, we're building them up everywhere. We've got them all over the place. Obviously it's a chance for us to vet those people and make sure that they share philosophy and are really have the mission of doing what's best for the consumer. And so as I build that slowly over time, that will become more and more available to everyone. And at some point we're going to have people everywhere, all over the country. There are good guys out there who know what they're doing. And there's a lot of guys who might be nice in there, funny and all that stuff. And maybe they just don't know what they're doing. So you gotta be careful Speaker 2 00:14:19 And good women as well. So just a good advisors all across the board. Uh, let's talk a little bit about when Speaker 1 00:14:25 I say guys it's gender neutral. Exactly. Yes. Thank you guys. Again, title of the article was annuities for inheritance. So we're going to talk about what the options are with an annuity, because again, if you have money left in nudity contract, contrary to what many believe an annuity is not just giving your money to an insurance company. In a lot of cases, I can say 98% of my clients have a balance remaining in their annuities. They're still using them. They're still benefiting from them. But one day a lot of those people are going to actually pass that asset onto the next generation. And so when we ran into, I ran into Charlie because he's in his eighties, he's looking a little more closely at what happens when he passes away. And so I had the good fortune of speaking, not only with him in a second conversation, but also also with the son and his son brought up the idea or said, what's going to happen when dad passes away and kind of light bulb goes off in my head. And I say, Hey, it's a newsletter because I think it's, you know, maybe I should have done it a long time ago, but now's the time because I thought of it. So that's the Speaker 2 00:15:32 Great thing about annuity straight talk. And what we're doing here is we're actually curating content that we're seeing and saying, let's share this because of one person has it. Other people have this situation just like if you're in a meeting and one person asks a question, other people probably have that question. Speaker 1 00:15:49 No, absolutely. So yeah, for every person that is bold enough to reach out and ask there's 100 people who have the same question, but don't really feel like engaging. So I've tried to do it over the last few years and just write the newsletters to get everybody good information. So let's, uh, let's get into it. How, like, all right, I'll show you handle the qualified side, explain that and talk about how that is no different than just an IRA. Well, Speaker 2 00:16:13 So we just talked about the qualified, right? So we're now talking a little bit about the non qual. Speaker 1 00:16:17 Yeah. So, and essentially we didn't specifically mention it that if you use IRA money or qualified money, which is pretax to buy an annuity, then your annuity is going to be distributed to your heirs, according to the IRS rules for an IRA distribution. Right. So it's lump sum or 10 year by 10 years, you got to have it all out of there. Right? Correct. Speaker 2 00:16:37 Correct. Pre-tax and now we go to money. That's already been put through the tax machine, the non-core. Speaker 1 00:16:42 Yeah. Like you got it in a checking account, a money market, a brokerage account, but you've already paid taxes. There's no tax deferral, but if you want, and that's a good thing. You put money into an annuity and you get tax deferral from it. But what happens to that when you pass it on to the next generation or the beneficiaries? Well, Speaker 2 00:16:59 It's, it gets to be more complex. But one of the examples is, is that you could, in times past some of the annuity, insurers would have provided three options where you could get that lump sum for this is for the non spousal beneficiaries. They could get a lump sum. They could potentially get that death benefit over five years. And I believe most of them used to offer that stretch option for the non-qualified, but a good number of companies have gone away from that. And I think it's a Speaker 1 00:17:31 Reality again, it's like, but it's still an option. Right. So regardless of whether some companies don't do it, this is still an option. So I think generally speaking, let's stick to that. So. Sure. So Speaker 2 00:17:41 Like for example, could you tell us what Charlie, he was an example, he had non-qualified money. What was he looking Speaker 1 00:17:48 At? So it was his son who asked him what happens when dad passes away. And I said, well, this is an interesting point. And I'm glad you brought it up, but it's kind of like the old IRAs you can take. So if you have a a hundred thousand dollar annuity that grows to $200,000 and your, so again, it's a spousal. If it's your wife or your husband, if it's a spousal transfer, then they just own that annuity. They can exercise the death benefit or they can keep the annuity. So there's no difference there. So it doesn't apply to spouses. It's a non spousal beneficiary, as a show has been saying, but an annuity grows from 100 to 200. Then if your beneficiary says, all right, I want to take the lump sum. They pull the whole $200,000 out. They're going to pay ordinary income taxes on the gain, which was a hundred thousand dollars. Speaker 1 00:18:34 That sound is my math. Correct. Okay. So that's one option. They could also take the annuity and they could distribute the $200,000 over five equal annual payments. So they could say maybe, maybe adding a hundred thousand dollars in taxable income is too much of a burden for someone depending on where they're in their, in their life. And they would say instead of just without using any interest growth or anything, it could be $200,000 once with a hundred thousand dollars taxes or they could take $40,000 per year, of which half of it would be taxable. Half of it would be tax-free basis. So instead of a hundred thousand dollar hit, one year, you do $20,000 tax hit for five years. Sound about right. That sounds right. And then, okay, so the third option is it's like the old IRAs where the beneficiary could say, well, maybe they're still working for seven or eight years. Speaker 1 00:19:33 They're not quite ready to retire. They don't want the big tax hit or whatever the situation is is they can take a stretch option. So if your beneficiary, if your son or daughter is 55 years old, let's make up a number. This is going to be high, but they might only be required to pull out 4% of that account every year for the rest of their life. And that might be ideal for them to get kind of a tax break. But what happens is they inherited a non-qualified annuity. They're required to make a decision within one year of the date of death. So they have to do something. So there, they could be forced into just paying a bunch of taxes or they can choose one of these other options. So I like the stretch option. Do you know why it shows you Speaker 2 00:20:17 Like the stretch option? Because it gives someone more flexibility rather than having a big tax bill upfront? Speaker 1 00:20:24 Well, yeah. And the great thing about the stretch option is you could say, boy, I just don't know what to do with this money. And it's so hard to decide whether a lump sum or a five pay or a stretch. I'm not sure cause I don't need whatever. Like this is a big decision and I will say, take the stretch option, take your 4% out. And if next year you decide that you want a lump. Maybe you want to a house. Maybe you want to send a kid to college. Maybe you want to buy a new car, depends on the size of the annuity, but you take the stretch option for one year while things are busy and you don't really know how to figure it out. And you can decide to after a year, you can say, you know what? I am going to take the lump sum. Speaker 1 00:21:02 So you can always commute the stretch option to a lump sum if you want to. And that works really well for people that inherited an annuity, but maybe five or six years from retirement where, and that's typically where income is highest. So they want to just pay the minimal amount of taxes. And then who knows, I mean, it goes to situation. It could be when they retire, they want to pay off their house or maybe they want to buy a second home or whatever it would be. That's one way to do it. But I've seen this in several cases. There's lots and lots of annuities that through the stretch option have lasted several generations. Speaker 2 00:21:36 You know what I like about where you're going with, this is someone who feels like they've accumulated a good amount of assets during their lifetime. They feel, Hey, I want to provide a nice legacy to the next generation so they can use an annuity. Let's just say they don't have this qualified money. And this is money. That's been sitting in a brokerage account and you know, they're able to keep that money safe, avoid market risk. Then when they pass using some of the things you've described, the next generation has flexibility. And it wasn't like the money was just not earning interest potentially may be subject to market risk. This is what many of the people who tune into annuity straight talk. They're trying to figure out how do I keep this money safe? And maybe I want to give a nice inheritance to the next generation. And then once that next generation, they're in a situation where they now have a bill, that's, it's a tax deferred bill, so they're going to have to pay. But what you're describing here is a lot of options where they can assess what's right for them. And that's why it fits nicely. Not only as one of your retirement keys with annuity straight talk, but it also fits nicely with the flex strategy that you talk about where it's flexibility is key when you're working with annuities, right? Speaker 1 00:22:52 It absolutely is. You want to keep all your options on the table, unless, I mean, if, you know, for a fact, if someone inherits a non-qualified annuity and you inherit $200,000 and you have $200,000 remaining on your mortgage, and the only thing standing between you and retirement is paying off that mortgage by all means, surrender that annuity pay off the mortgage. Right. But it's just comes down to the situations where people don't necessarily know what to do with it. And I like, yeah, flexibility. And unless, you know, for certain you want to take that thing all out at once. You should probably use a stretch option cause you can always revert to that. So it's a, it goes back to my old saying a show, would you rather have a hundred thousand dollars and owe a hundred thousand dollars or have nothing and oh, nothing. Speaker 2 00:23:39 I would rather probably have a hundred thousand and owe a hundred thousand. I mean, why is that a, you have, you have nothing and you owe nothing. Where are you really going to get going? Yeah, no, but Speaker 1 00:23:49 No, you can always get back to have nothing and no nothing. That's true. So it's hard to get back to a hundred and yeah, right. So the idea is just that have a hundred oh a hundred, you can pay off the a hundred and have nothing or nothing if that's what you really want, but you have the option. So again, it's just, it's keeping everything on the table. And so, but again, this is not to tell anyone that they should take a stretch or whatever it is, but it's kind of one of those things that just to understand what the options are. Right. Speaker 2 00:24:20 Well, I think the key takeaway from this is a new cities can be used as inheritance tools and that someone who is looking at the situation of thinking, I want to keep my money safe. I want to avoid market risk. I've got an, a vision of what I want to provide in the form of legacy. What's the next step? They call 804 3 8 5 1 2 1 that's 843, 8 5 1 2, 1 go to a new city straight talk, click the schedule, a call button, and just say, this is what I've got going on. What do you think? And they can start hearing some ideas from us as to how we could be of value to them. Absolutely. Speaker 1 00:25:04 And one thing I want to add to this whole thing is let's say you have three kids like Charlie did each child, each beneficiary can do a different thing. One could take a lump sum. One could take a five-year pay. One could take a stretch. And that's another thing with options where it works. That's where it helps to have an advisor that kind of knows how this all works, because you might have three, people do three different things and they need to understand that they can. So it's the, sky's the limit. The answer is yes. Just tell us what the question is. Right? Speaker 2 00:25:36 I love it, Brian. I think we've covered this pretty well. I think people can take action by doing, like Speaker 1 00:25:42 We said. Yeah, they can get ahold of us. Yeah. Encourage everyone to subscribe to the YouTube channel or the podcast. If you want to get an update, when these are set out, we're still getting kind of used to getting in our group. Right. A joke. I mean, I picked a different filming place every week, so we'll get that figured out and we'll get some consistency here, but uh, appreciate everybody giving us the opportunity and we look forward to working with you and helping you out, whatever your question is. I love it. Thanks so much, Brian. Okay. Yeah. No, thank you. A show. It's been fun and it's going to get better and better as we go along. So I want to thank everybody for joining us. And again, you know how to contact us annuity straight talk.com. Schedule a call call (800) 438-5121. And, uh, we're looking forward to talking to you again. Next time we'll expand the time Speaker 0 00:26:35 You have been listening to annuity straight time. The preceding information is for informational and educational purposes only and does not represent tax legal or investment advice. The views expressed by guests on this program are their own and do not necessarily reflect the views or no information presented today should be acted upon without meeting with a licensed profession. It is important that you read all insurance contract disclosures carefully before making the purchase decision guarantees are based on the financial strength and claims paying ability of the insurance company. Speaker 3 00:27:32 A show guest, Ron G is an investment advisor, representative of insight, folios and sec registered investment advisor. The firm only transacts business in states where it is noticed, filed, or is excluded or exempted from notice filing requirements, any fee based financial planning and investment advisory services are offered through his association with insight folios, top planning LLC is not a registered investment advisor and is not another name under which insight folios provide services. Insurance products and services only are offered through top planning, LLC insight, folios Inc, and top blending LLC are not affiliated companies.

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