Why Would You Put A Non-Qualified Annuity In Your Trust?

Shawn Plummer

CEO, The Annuity Expert

In today’s ever-changing financial landscape, exploring every possible avenue to secure a comfortable future is crucial. One intriguing strategy gaining traction involves placing non-qualified annuities into a trust. You may ask, “Why would you put a non-qualified annuity in your trust?” Let’s navigate this landscape together.

Confused About Annuities?

Are you new to annuities and unsure where to begin? Visit our Annuity Learning Lab for expert guidance and insights.

The Basics: Understanding Non-Qualified Annuities

In their simplest form, annuities are contracts with an insurance company where you make an upfront payment or a series of payments in exchange for regular income payments in the future. Non-qualified annuities are purchased with after-tax dollars; only the earnings are taxable upon withdrawal.

Example: Say you invest $100,000 in a non-qualified annuity. Over time, this investment grows to $150,000. Only the $50,000 gain would be subject to income tax upon withdrawal.

Trusts: Safeguarding Your Financial Legacy

A trust is a legal entity that holds and manages assets for the benefit of specific individuals or entities. This management structure protects and controls how these assets are distributed after death.

Non-Qualified Annuity In Your Trust

The Winning Combination: Non-Qualified Annuities in Trusts

By placing a non-qualified annuity in a trust, you gain several key benefits:

  • Asset Protection: Trusts can protect you from creditors, ensuring your annuity income is safe.
  • Control Over Asset Distribution: The trust dictates how and when annuity payments are distributed, allowing you to control the timing and recipients of your assets.
  • Potential Tax Advantages: While the tax implications can be complex, strategically using trusts may minimize estate taxes.

Example: Imagine you’ve placed a non-qualified annuity worth $500,000 in a trust. Upon your death, this trust protects these assets from creditors and ensures your chosen beneficiaries receive the annuity payments per your wishes.

Non-Qualified Annuities In Your Trust

Navigating the Potential Pitfalls

While there are clear advantages, potential pitfalls must be navigated carefully:

  1. Tax Complexity: Trusts are subject to specific tax rules that may impact your beneficiaries’ tax obligations.
  2. Trust Expenses: Trusts require ongoing management, which can incur additional costs.
  3. The Inflexibility of Trusts: Once you place an annuity in a trust, the trust owns it. Changing this arrangement can be complex.

Example: If the trust that holds your annuity is not set up properly, it may result in a higher tax liability for your beneficiaries. Working with a knowledgeable financial advisor or attorney to mitigate such risks is essential.

Non-Qualified Annuities Trusts

Next Steps

So, why would you put a non-qualified annuity in your trust? The strategic benefits, such as asset protection, controlled asset distribution, and potential tax advantages, often outweigh the potential pitfalls. As with all financial decisions, careful planning, consultation with a trusted professional, and a clear understanding of your financial goals are paramount. Whether you’re looking to protect your financial legacy, ensure the financial security of your loved ones, or maximize your wealth’s growth potential, integrating non-qualified annuities with trusts could be the perfect strategy for you.

Non-Qualified Annuities In Your Trusts

Request A Quote

Get help from a licensed financial professional. This service is free of charge.

Contact Us
First
Last

Frequently Asked Questions

What happens if the trust that holds the annuity is not set up correctly?

If the trust is not set up correctly, it could result in a higher tax liability for your beneficiaries. It’s essential to work with a knowledgeable financial advisor or attorney to ensure all associated documents for the trust are correctly completed to avoid any potential issues. Additionally, they can help you evaluate your goals and navigate any complexities associated with using a non-qualified annuity in a trust. This will ensure that you make an informed decision about your finances.

What is the best way to place a non-qualified annuity in a trust?

Working with a trusted financial advisor or attorney is the best way to ensure you have all the information and guidance needed for making an informed decision about your finances. They can help you evaluate your goals, navigate complexities, and determine if a non-qualified annuity in a trust is your right strategy.

Before placing a non-qualified annuity in a trust, are there other considerations?

As with all financial decisions, careful planning, consultation with a trusted professional, and a clear understanding of your financial goals is paramount. Consideration should be given to the age and health of the beneficiaries, as well as the potential impact of estate taxes. Additionally, it’s important to ensure that all associated documents for the trust are properly completed.

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

Scroll to Top