No Load Annuities - Build Your Own Benefits

Annuities have received a lot of bad press the past few years. High expenses and high sales charges in the form of contingent deferred sales charges (penalties) along with questions of suitablity for older investors has lead to increased scrutiny by both regulators and the press. Yet sales of deferred annuities continues to grow.

Why? Investors must like some of the features that annuities offer. One of the features often describes the ability to invest your money aggressively in the mutual funds offered in the annuity, while knowing your heirs will receive no less than the amount you originally invested less withdrawals when you die. Some offer a step up in the death benefit to the highest value on the annuity contract's anniversary date. Investors seem to like these guarantees, and are willing to pay extra for them.

However with the advent of no-load annuities you may be able to duplicate many of these benefits at a much lower cost than agent sold policies offer.

Take the basic benefit that pays your heirs the higher of the current contract value or the amount of your initial investment. While most annuity contracts charge 1.25% per year in Mortality expenses the Schwab Signature annuity offers this benefit for only .85% per year in Mortality charges, and Ameritas offers this benefit with only a .55% mortality charge.

To get a death benefit that steps up to the highest anniversary value many companies charge an extra .30% annually. But you can approximate this guarantee yourself at no cost by using two no load annuity companies and the 1035 exchange rules. The way this would work is you choose a no load annuity with for example Schwab. If your annuity appreciates in value and you decide to lock in a new higher death benefit for your heirs you simply complete an exchange to say Ameritas. Neither company charges you a penalty or fee for withdrawal so you have effectively stepped up your death benefit without paying anything extra.

By combining immediate annuities with deferred annuities you can also duplicate many of the living income benefits and principle return benefits offered by variable annuity companies. Again with lower cost to you.

If you have variable annuity contracts that you would like analyzed seek guidance from a fee only advisor that will have no conflicts of interest in helping you make the decision that is best for you.

technorati tags:Finance, No-Load Annuity, financial planning

Tax Credit Trusts

Current tax law allows any individual to pass $2 million to their heirs without the estate being subject to federal estate taxes. This figure is slate to increase to $3.5 million in 2009. But what happens if your estate is greater than $2 million? Federal estate tax rates range from 18% to 46% on amount that exceed the $2 million exemption.

A Tax Credit Trust is one of the first tools families employ to eliminate estate tax liability. Sometimes called an A-B Trust, this tool can effectively double the estate tax exclusion amount for married couples. Here's how it works.

Each person can utilize the $2 million estate tax exclusion, so a married couple have up to $2 million each they can pass to their heirs without federal estate taxes. If you don't use it you loose it. Many couple have simple "I love you" wills that pass all assets directly to the surviving spouse in the event of death. This puts all the assets into the estate of the surviving spouse and relinquishes the estate tax exclusion of the first spouse to die.

What the tax credit trust can do is to receive up to the maximum federal exclusion amount keeping these assets out of the estate of the surviving spouse. The trust is usually set up to pass all income to the surviving spouse, and the surviving spouse can even invade the principle if needed. However because the assets never become a part of the surviving spouses estate they pass to the next heirs in line with no estate taxes due upon the death of the last spouse, and the last spouse still has their $2 million exclusion to pass without taxes also. So with just a little planning couple can pass $4 million to their heirs without triggering any federal estate tax bill.

Many individuals mistakenly believe they will not have a problem, but remember life insurance proceeds, family business interests, and real estate holdings are all part of your taxable estate. Another pitfall is making sure each spouse has enough assets to fully fund their tax credit trust. If a husband owns a business and is heavily insured it is easy to find assets to fund his trust with, but what about his wife. You should look at correctly titling your assets to avoid problems like this. The risks are high enough that you should seek competent counsel to be sure you make the right decisions.

technorati tags:Finance, Tax Credit Trust, financial planning

Life Insurance Needs

Most folks own some life insurance, few have any idea if it is too little, too much, or just right. Many are confused by all the flavors - term, whole life, universal, variable universal. There is no quick and easy way to determine your flavor, too much depends on your personal goals and family situation. Term is great for pure protection, but totally useless for estate or charitable planning. Whole life is easy to understand, but sometimes universal or variable universal would be a better choice.

If you have real concerns about your insurance needs it is important to review your current policies with an advisor that has no conflict of interest. That means don't ask your agent, his interest is in selling life insurance. Insurance needs analysis is a key component of your financial plan. A fee only advisor who receives no commission or other benefit from your insurance purchase is ideally suited to help you with this problem.

If you want to get started on your own or if you are just curious you can find a pretty good online insurance needs calculator at the Life and Health Insurance Foundation for Education.

technorati tags:Finance, Life Insurance Needs, financial planning