Unlock Hidden Wealth: Use Deferred Annuities for Tax-Free Legacy

Many of your clients may have purchased Deferred Annuities with the intent of securing retirement income—only to find they no longer need the funds for that purpose. Instead, they often plan to “leave it for the kids.”

While a Deferred Annuity is a great accumulation vehicle, it is far from the most efficient way to transfer wealth to the next generation. In fact, without proper planning, it could be taxed twice at death, significantly reducing the legacy your clients intend to leave behind.

What if there were a way to reposition these assets to minimize taxes and maximize the wealth transferred to heirs?

A Smarter Approach: The Annuity Maximization Strategy

By reallocating Deferred Annuities into a more tax-efficient structure, you can help clients unlock more value for their heirs while still maintaining control of their wealth.

How It Works

1. Convert the Deferred Annuity into a Single Premium Immediate Annuity (SPIA).

   • A SPIA provides guaranteed income over a set period or for life, based on a lump-sum deposit.
   • The payout is determined by your client’s age and health status.
   • This move spreads the tax liability over time, rather than hitting heirs with a large tax bill upon death.

2. Use the SPIA income to fund an Irrevocable Life Insurance Trust (ILIT).

   • The after-tax SPIA income can be gifted to an ILIT, which then purchases a life insurance policy on the client’s life.
   • The policy’s death benefit is tax-free, providing a more efficient way to pass on wealth.

3. Result: More Money for Heirs, Less Tax Liability.

   • Instead of leaving an annuity that could be taxed up to 70%, clients leave a tax-free death benefit.
   • In many cases, the total legacy left behind exceeds the original annuity’s value.

Why This Strategy Works for Many Clients

• Clients who no longer need their annuity for income but still want to leave something for their family.
• Clients concerned about taxes eroding the value of their legacy.
• Clients looking for a guaranteed way to increase the amount left to heirs with minimal effort.

How You Can Use This to Generate New Business

This strategy is a conversation starter that can help you uncover overlooked opportunities with existing clients. Here’s how you can put it to work:

✅ Review Your Book of Business: Identify clients with deferred annuities they no longer need for income.
✅ Ask Key Questions: “Would you rather leave a tax-heavy annuity to your kids, or a tax-free life insurance benefit?”
✅ Present the Numbers: Show a side-by-side comparison of leaving an annuity vs. leveraging life insurance.
✅ Introduce the Concept at Review Meetings: Clients already understand annuities—positioning this as a simple repositioning strategy makes it an easy sell.

By helping clients transform inefficient assets into a tax-free legacy, you create value, deepen relationships, and open the door to new business.

This refined version keeps the financial strategy clear while making it more engaging for advisors. It also frames the idea as a sales opportunity, helping them identify prospects, ask the right questions, and drive new business. Let me know if you'd like any tweaks!