Annuities

An annuity is an investment vehicle that allows one party, usually an insurance company, to receive cash or other property from a second party in exchange for the promise of periodic payments over a specified period of time.

The owner of the annuity retains the contractual rights that include the authority to name the beneficiary and the date to begin the pay distributions.

The person whose life is used to determine how payments are to be made is called the annuitant, who in most cases is the owner of the annuity, but not always. Someone else may be named the annuitant.

The person who receives the payout of death benefits under the contract is called the beneficiary.

The overall advantage of an annuity is that it provides an established stream of income for retirement years, for a spouse or other relative, or for someone who is disabled.

Annuities can be set up to provide future income in several ways:

• Straight Life Annuities are annuities that end at your death and do not pass any value to heirs or to anyone else, thereby causing no estate tax.

• Joint and Survivor Annuities do not end when the first annuitant dies, and continues for the benefit of the surviving spouse or other remaining annuitant. Upon the death of the surviving annuitant, there is no estate tax because there is no value remaining in the account.

• Variable Annuities are set up to provide regular payments but with no set dollar amount. This annuity is based on the costs of a unit of a fund at the time of it's purchase. The payments vary according to fluctuations of the value of the unit, thereby the dollar amounts received for payments cannot be guaranteed.

• Private Annuities are purchased from corporations or other private individuals or companies. Because of tax ramifications, private annuities are complex and risky to the individual or corporation issuing them.

• Employee Annuities can be an individual or a combination of the different types of annuities applied by employers on a group basis for employees, usually as a vehicle for retirement.

To set up an annuity, talk with your accountant, tax consultant, or an attorney. It is always wise to seek professional advice before attempting to set up any type of investment vehicle because there will be tax consequences in one way or another.

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