🔁 The Annuity Angle: How to Protect Inheritance & Reduce Tax Surprises

(Part 3 of the “Where Not to Die in 2025” Series)

Intro

By now you know that estate and inheritance taxes can hit hard. And while life insurance is a powerful tool for liquidity, there’s another strategy worth exploring—annuities.

Used properly, annuities can control when taxes are triggered, protect retirement assets from volatility, and give your clients the confidence to leave a legacy without losing it to Uncle Sam.

💡 The Tax Timing Problem

Many retirees want to leave money to their children—but not in a way that causes a tax mess. The biggest pitfalls?

• Inherited IRAs (post-SECURE Act): must be drained within 10 years

• Non-qualified accounts: can trigger income tax based on gain

• Sudden windfalls: may push heirs into higher tax brackets

🧠 Advisor Script Tip:
“The best time to pay tax isn’t all at once—it’s when it makes the most sense for your family. Let’s build in flexibility now so they don’t have to scramble later.”

🧱 Annuity Solutions for Legacy & Tax Efficiency

✅ 1. Non-Qualified Annuities (Deferred)

• Let money grow tax-deferred until needed

• Passes to heirs with gain taxed only when withdrawn

• Can be structured to pay out over time, avoiding bracket shock

Best for: Clients with CD or brokerage money they don’t need now but want to leave behind tax efficiently.

✅ 2. QLACs (Qualified Longevity Annuity Contracts)

• Funded from IRA/401(k) to delay RMDs until age 85

• Reduces annual RMDs and taxes for those who don’t need all their income

• Leaves more tax-deferred assets intact for heirs

Best for: High-balance IRA holders aged 60–75 focused on long-term planning.

✅ 3. Annuities With Death Benefit Riders

• Offers a guaranteed death benefit to heirs

• In some cases, includes enhanced benefits for nursing home or terminal illness scenarios

• Some riders allow for step-ups in value or fixed minimums

Best for: Clients who want growth but also care about control and certainty for their family.

🔄 Real Case Example

Client: Retired 67-year-old with $500,000 in brokerage CDs and $800,000 in an IRA
Goal: Leave a legacy, but reduce tax pain for kids

Solution:

• Reposition $250K into a deferred annuity with a death benefit rider

• Use $135K from IRA to fund a QLAC, reducing RMDs now

• Kids inherit in a more structured, tax-timed way

🔑 Why Advisors Love This Strategy

• Keeps money growing safely while delaying or spreading taxes

• Appeals to conservative investors who still want efficiency

• Fits inside estate and income tax strategies (especially post-TCJA)

✅ Advisor Takeaways

• Look for clients over age 60 with assets they don’t need for income

• Target non-qualified CDs, money markets, and brokerage assets

• Use annuities to bridge the gap between growth, protection, and tax timing

• Team up with us for custom illustrations & client-ready strategies

📣 Call to Action

Need help comparing annuities for legacy planning?
We’ll run the numbers and show you how to position the best fit for your clients.
[Contact us here] or schedule a 1-on-1 consult.