Investors in the U.S. own over $880 billion worth of variable annuities.1 And some of these individuals may not need the annuities to meet their retirement income requirements. However, they may still want to make the most of their assets and pass as much as possible to those they care about.
For instance, look at Jack and Helen, both 70 years old. They have been married for 45 years, have two grown children, and are in a high tax bracket. The variable annuity that they bought fifteen years ago has done well. But Jack and Helen have found that they are able to live very comfortably without touching the annuity and are not sure what to do with it. Also, they volunteer at a local hospital and would like to leave a meaningful gift to the organization while not taking anything away from their children and grandchildren.
Jack and Helen could annuitize the contract and invest the tax-favored payments into two, second-to-die variable universal life insurance policies. An irrevocable trust would own the first policy. The second policy would be given directly to the hospital’s foundation and provide Jack and Helen with an ongoing income tax deduction for their annual premium payments.
When the survivor dies, the first policy’s death benefit will pass free of income and estate taxes to Jack and Helen’s children and grandchildren. And since the charity is the owner and irrevocable beneficiary of the second policy, its tax-free proceeds will not be included in the survivor’s estate.
Please note that investments in variable life insurance policies underlying investment options involve risk, including the possible loss of principal invested and that the purchase of variable life insurance policies may involve significant costs.
(1) As of the end of the second quarter 2003. http://www.navanet.org/frames/press_dex.htm
