Memphis Lawyer CPA
Annuities in Estate Plans

With the historically low interest rates in the market today, and distrust of owning shares of corporations, people are often attracted to a product called an annuity. An annuity is basically a contract you execute with an insurance company wherein the company is required to give you 'x' percentage return annually with 'y' amount of principle value residual at some future date, all guaranteed. Sounds great, right? Maybe, maybe not. Here are some things to consider.

Costs and fees associated with annuities in your estate plan

Say you have $50,000.00 and start an account with E Trade, or Schwab, or Fidelity, etc. You pick 5 stock ETF's (exchange traded funds) and 5 bond ETF's. Your 'price of admission' to these 10 funds is around $10.00 per fund, or $100. Now let's say on the the way to the Schwab office you meet a very nice annuity sales person and are enticed by the guarantees and promises of the annuity product. What is your 'price of admission' you might ask. Well you should ask this as the sale person will typically earn 5 to 6 per cent commission. That amounts to $2500 to $3000 versus $100. How can that hurt you? Keep in mind the old adage - 'there is no such thing as a free lunch' and follow the example below.

An example of how an annuity can damage your estate plan

Here's a composite example of an actual situation related to us. Dad leaves Mom $50,000 upon his passing. Mom wants to get the highest 'safe' rate of return for herself and provide for her two adult kids when she passes. Mom buys a relatively high return $50,000 annuity with a 10 year surrender period. Unfortunately as sometimes happens, Mom unexpectedly passes away six months later from a stroke. The son and daughter, who are raising kids of their own, decide to 'cash in' Mom's annuity. The insurance company says its present worth is $38,000. That amounts to about a one fourth drop, or arguably faster than certain stocks during the Fall of 2008. Mom was competent when she signed the contract with the insurance company, and all risks were spelled out in the document she signed. Any challenge would generally fall upon deaf ears in any court in the land.

Hire an experienced estate planning lawyer

At The Burdette Law Firm we have the financial acumen that comes from being a Certified Public Accountant plus we can construct a legal framework for your estate - be it a will or a trust - that is consistent with your situation and desires. We will not try to sell you any investment products, but will serve as the voice that whispers the time tested wisdom: 'don't put all your eggs in one basket'. Stay tuned as we talk about more investment products, estate plans and their potential upside and pitfalls.

More information

After reviewing the above if you have questions and need our assistance in an estate matter, please call us at (901) 756-7878 or use the contact form to the right.

Further reading if you are in the vicinity of Memphis and want planning help

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