Annuities are contracts between you and an insurance company, which is unlike retirement investment accounts like 401(k)s or individual retirement accounts (IRAs). Forbes’ recent article entitled “What Is An Annuity Beneficiary?” explains that, with an annuity, you make a lump sum payment or a series of payments over a set period to the insurance company. In exchange, the insurance company will pay out a stream of income in retirement or at a predetermined future date, depending on the type of annuity purchased. A number of Beck, Lenox & Stolzer clients use these annuities for income stream purposes. Specific annuities are utilized when a client is needing to spend down for Medicaid purposes. Beck, Lenox & Stolzer offers this assistance in our Medicaid Planning practice area.
An annuity beneficiary is a person or entity that receives the benefit of an annuity after the death of the annuity owner. Who you choose to be the beneficiary of your annuity depends on several factors, including the type of annuity you own and your financial goals for it.
There are a number of benefits to annuities, such as a predictable income in retirement, tax-deferred growth and a death benefit if you pass away. There are several different types of annuities, but they can be grouped into three main categories:
- Fixed annuity. If you buy a fixed annuity, the insurance company will pay you a minimum rate of interest and a fixed amount of periodic payments. These are the safest type of annuity because you know the minimum you’ll earn.
- Indexed annuity. This combines features of annuities and investment securities. The insurance company’s payments are based on the performance of a stock market index, such as the S&P 500. When the index performs well, the value of the indexed annuity increases. However, it can also decline along with the index’s performance.
- Variable annuity. With this type of annuity, you can use your annuity payments for investment products, like mutual funds. Your payout is based on the performance of how much you invest and the rate of return on those securities. These annuities can be risky. However, they have the potential for higher returns.
Whoever signs an annuity contract is considered the owner, and it is the owner who selects the way the annuity will be funded, how payouts will be made and the recipient of the payouts. Owners also name beneficiaries, control withdrawals and have the power to cancel the contract. An “annuitant” is the person who gets income payments from an annuity contract.
Some annuities have death-benefit provisions, so you can name someone to inherit the remaining annuity payments if you die before it’s been fully paid. The designated recipient of that benefit is known as the annuity beneficiary.
The death benefit of an annuity is typically the remaining contract value or the amount of premiums, minus any withdrawals, upon the annuity holder’s death.
We have resources for you if you do not know who to contact for an annuity. Medicaid planning is very complicated, and if you need advice in that area, you need to contact us first at Beck, Lenox & Stolzer Estate Planning and Elder Law, LLC. Click here to schedule a phone call with one of our attorneys, or call our office at 636-946-7899.
Reference: Forbes (Jan. 19, 2023) “What Is An Annuity Beneficiary?”