What Is a Stretch Annuity?
A stretch annuity (regularly known as a legacy annuity) is an annuity selection where tax-deferred allowances are passed at once to the beneficiaries, offering them further flexibility and keep watch over over maintaining the investment. The beneficiary thus has fewer restraints on wealth transfer, and he or she is able to download a larger sum of benefits stretched over a longer period of time. This kind of annuity is most often non-qualified, as a result of this that it isn’t held inside an IRA.
Key Takeaways
- A stretch annuity (legacy annuity) lets in for more uncomplicated wealth transfer for annuitants to their beneficiaries once they die.
- On account of annuity benefits may also be extended to children or grandchildren, assets taxes and asset transfers may also be minimized.
- Stretch annuities are odd and vary from joint-life annuities that provide continued spousal benefits after the annuitant’s death.
How a Stretch Annuity Works
Legacy annuities or stretch annuities aren’t presented by means of many insurers. This kind of annuity may also be sure because the beneficiary isn’t stressed out with paying a huge tax bill on his or her sure sides. This regularly may also be hectic for a family that has merely treated the loss of a beloved one. The idea is that the annuity contract may also be “stretched” over multiple generations instead of just a single owner or couple.
What happens to an annuity after the death of the owner largely depends upon the type of annuity plan. The owner, or annuitant, elects the annuity type and any beneficiaries at inception, even supposing beneficiaries could also be changed by means of the annuitant prior to death. There are quite a lot of varieties of annuity payout plans. For some, price ends with the death of the annuitant, on the other hand others provide for price to a spouse or other beneficiary for years shortly.
Stretch vs. Joint-Existence Annuity
A stretch annuity is not like a joint-life annuity. A joint-life annuity guarantees price for each and every your lifetime and that of your beneficiary. Upon your death, your spouse or other beneficiary continues to acquire expenses until his or her death. Expenses to beneficiaries may also be the entire amount payable to the annuitant during his or her lifetime or a reduced amount, depending on the elections made by means of the annuitant at inception.
Via stretching the annuity, the one who takes out the contract gets no expenses. As an alternative, lifetime income is provided to the owner’s beneficiary according to the inherited contract worth and the beneficiary’s life expectancy when the payouts start. Consistent with IRS rules, beneficiaries must withdraw a minimum annual amount according to their life expectancy, starting within 12 months of the original owner’s death.
The tax benefit is provided because the beneficiary’s tax prison duty is stretched over multiple years, as opposed to receiving an inherited annuity in a lump sum, as a result of this the taxes are due throughout the year of distribution according to the amount inherited and the beneficiary’s tax bracket. A lot of these annuities are regularly part of assets planning by means of wealthier families.
