Some wealth advisors flip pink, white or grey on the considered their high-net-worth shoppers shopping for annuities.
For top-net-worth shoppers, the priority is that annuities create taxable revenue. The very last thing most wealth advisors need is to extend their shoppers’ tax payments.
Jack Elder, a tax legal professional who serves because the senior director of superior gross sales at CBS Brokerage, believes that wealth advisors ought to think about using quick annuities to shoppers and their households relatively than tapping invested belongings for the money wanted to cowl their “MUG”: mortgage, utility and grocery prices.
If shoppers have extra protected revenue from sources akin to pension plans, Social Safety and annuities, “they don’t must eat their belongings underneath administration to assist their way of life,” Elder stated in an electronic mail interview. “If they permit their managed belongings to compound with out spending them down, legacy belongings are elevated.”
What it means: Even HNW shoppers want a stream of revenue they will use to pay the payments.
Single-premium quick annuities: A single-premium quick annuity, or SPIA, is a product that converts one large pot of money right into a stream of assured revenue.
The bucket: For some HNW shoppers, Elder stated, placing annuities within the “bucket” for the mounted revenue a part of the portfolio can generate the regular revenue the shoppers must cowl prices with out raiding the legacy belongings.
“By mitigating the necessity for big portfolio withdrawals, a right away annuity can permit a household’s wealth to develop extra effectively,” Elder stated. “This development interprets into a considerable enhance within the worth of belongings handed on to heirs.”
The evaluation: Elder stated rich advisors must work fastidiously with insurance coverage advisors and tax advisors to see whether or not an annuity, or some other choice, is the correct answer for a given HNW consumer.
The evaluation ought to embody the consumer’s private monetary objectives, asset combine and long-term goals, he stated.
“There isn’t any ‘one-size-fits-all’ answer for HNW people and their households,” he stated. “Conversations between advisors and shoppers on quick annuities contain a whole lot of subtleties. All of it comes right down to the mathematics, making certain the correct quantity of funds are allotted to a right away annuity that can assist enhance a HNW particular person’s AUM yr over yr, via their retirement. If the mathematics isn’t proper, this funding software will be counterproductive.”