Annuity Arbitrage

Do you have underperforming assets in your portfolio or assets that are not generating enough income to meet your retirement income needs?  There is a way to reposition underperforming assets to increase current income and create a larger financial legacy for your family.

We can reposition underperforming assets into a single premium immediate annuity (SPIA).  The after-tax SPIA payments, which include a return of initial deposit, continue for life and often exceed the after-tax income from the repositioned asset.  All or part of the excess after-tax SPIA income can be directed toward the purchase of a life insurance death benefit, which, if properly structured, passes income tax and estate tax-free.

How is this Possible?

We take advantage of differences in the underwriting ratings of different insurance carriers for the same person.  We purchase a SPIA from the carrier offering the less favorable insurance rating and, at the same time, acquire (in an irrevocable life insurance trust (ILIT) a life insurance policy from the carrier offering preferred rates.

How it Works

You convert and/or liquidate certain underperforming assets into a SPIA with a life-only annuity option(1).  By doing so, you can generate a guaranteed income stream that can be used to meet current lifestyle needs(2).

Any income in excess of the amount needed for your lifestyle needs can fund annual gifts of premiums to the trustee of an ILIT(3).  The trustee of the ILIT can then leverage these annual gifts by purchasing a life insurance death benefit, which, if properly structured, passes tax-free to your beneficiaries.  If covered by your annual gift tax exclusion and/or lifetime gift tax exemption, the annual gifts of premiums made to the ILIT will not be subject to gift tax.

Moreover, since a life-only annuity option is utilized in this approach, the SPIA principal has been removed from your estate and will not be subject to transfer taxes at death.  By incorporating a SPIA and life insurance into wealth transfer planning this way, you may be able to increase personal income and pass more wealth on to your beneficiaries than you would if the assets were retained until your death.