Legacy Planning With Annuities | 7 Figure Annuity Sales Podcast | Ep. 283

The first objective in using annuities for legacy planning is to not actually use annuity death benefits for legacy planning. You heard that, right. This is Caleb north with the seven Figure Annuity Sales podcast and I am Roland Solo yet again. Chad is in Colorado. As you guys know, he's in the middle of a great big move. So I'm on here today and I'm going to talk the next couple of weeks about some things that quite frankly are a little bit more frequent in my day to day, working with agents and helping them with case design and product selection and all those good fun things as Chad is, is up there working hard and getting the house settled. And anyways, we're going to talk today about legacy planning with annuities and how to try and structure it. But if you recall back to that intro, the first objective should be to not actually use annuity death benefits for legacy planning. And there's a specific reason I say that. And it really comes down to taxation around death benefits. If you have the opportunity at all to pass on life insurance, in contrast to an annuity's death benefit to the heirs and beneficiaries, you position yourself much greater. You position the heirs, the beneficiaries much greater by using the life insurance, which obviously passes tax free, as opposed to using annuities that pass taxable. So the death benefits and annuities, they are going to be taxed. The death benefits in life insurance is obviously not going to be taxed. So just bear that in mind. If you can get life insurance for your client, that's going to be the best way to go about it. Now, obviously, before we even talk about strategizing life insurance or annuities, because there are some ways you can still incorporate annuities for legacy planning and using their income or their death benefits. But before we even get into those types of strategies, let's talk a little bit about purpose of the money.

You're going to need to determine what the money that they have is designed for. I come across cases pretty frequently with agents where they'll tell me, hey, Caleb, yeah, I've got this. 200,000 clients looking to just try and leave some death benefit to their, to their heirs, their beneficiaries, their grandkids, their kids, whoever it may be. It's like, okay, well, if the purpose of the money is dying, now let's strategize using that. But make sure you're asking people, is this a plan for living or is this a plan for dying? Because sometimes people will voice that concern about Leaving things behind. But that doesn't necessarily mean that it's always their number one concern. Okay, so you need to, you need to actually get to the root of what is this money supposed to do? And I would even go so far as to say, if you're asking somebody, hey, what's the purpose of the money? Is this a plan for living or is this a plan for dying? And they come back and they say it's a plan for dying, then it may be worth pushing that a little bit further and clarifying, saying, hey, just so I understand, you're saying that this chunk of money is designed to explicitly be passed on to your beneficiaries. You're not intending to use this in any capacity for your retirement, is that correct? And then get the clarity on that. If they come back and they say, yeah, that's what this is for, then fantastic, we're off to the races. Creating a great legacy plan for them, probably, if you're working with me, leveraging annuities and life insurance together if they're insurable. But we're going to get into some of that here in just a minute. If they come back and they say, oh, well, no, you know that I'm obviously concerned about leaving some to my beneficiaries, but I definitely need to use this, you know, to live on in retirement as well. Now we're approaching it completely differently, right, because the main purpose of that money is for them to live on it. And then whatever's left over, they want it to pass on. So what they're saying, when this is a plan for dying, they're probably just simply saying, hey, whatever's left over, I want it to go to my heirs and beneficiaries. So if they say that's a plan for dying, get that next layer of clarification to really get to the heart of the purpose of the money and what they're trying to have it accomplish for them. I like to say, as a general rule of thumb, pass on life insurance and live on annuities. All right? In the 2024, we've got people with Social Security and very few pensions and lots of 401ks, lots of 403s, lots of IRAs. We've got all these different employer plans and individual retirement arrangements and very few pensions. Okay, if that's the case, then why do I say we're living on annuities? Is because Social Security was never designed to be somebody's sole source of retirement income. It's not, quite frankly, enough for just about Anybody. There's very, very seldom cases where Social Security is actually enough for somebody to live on in retirement, so they need some kind of supplement. But what you have to consider is that in decades past and people had corporate pensions, those pensions would create income in their retirement and that would supplement Social Security. And generally that would be enough to fund their retirement. Well, people don't have that anymore. The corporate world has shifted from the defined benefit plans that pensions were into the defined contribution plans that 401ks and 403bs and these 457s and all these different employer plans are. They're not defined benefit plans. Because you work with somebody that has any kind of employer plan or maybe you're one of them.

You know full well there is no real systematic schedule of withdrawal, time period, anything like that. There is no real. Well, I guess you have money markets and whatnot. But there's a lot of variability around the current employer plan model. And so what we're able to do with annuities now is we're able to convert those defined contribution plans and in the annuity, create what is essentially a defined benefit plan. Guaranteed lifetime income, downside, market protection, interest withdrawals. However you're structuring it, we're able to create that for people now. So we're shifting, we're using annuities to kind of revert back to the model of old that was extremely successful for people to retire and actually worked. So when I say pass on life insurance, live on annuities, that's what I'm referring to. I'm using annuities as a stream of retirement income in tandem with Social Security and whatever other retirement income they have in place, but not necessarily trying to explicitly use annuities for the death benefits for their heirs and beneficiaries if they can get life insurance. Okay, now it's quite possible that somebody out there, they say it's a plan for dying, they've already got a huge life insurance policy.

They may be not insurable, whatever the case might be, in which case you're probably looking to use annuities for the death benefit at that point, if that is truly the purpose of the money. And we'll talk about some strategies for that here in a few minutes. But I want to talk about those that are insurable, those particular clients, they come to you and they say, hey, this chunk of money, however much it is, few hundred thousand dollars, this is designed to be left to my heirs and my beneficiaries. Well, that's fantastic. If you can get them life insurance at a reasonable cost for a period of time beyond, quote unquote, their life expectancy. In other words, the life insurance will either guaranteed or as close to guaranteed as possible, be there when they pass. And what you can do with that chunk of money is you can actually fund an annuity with it, but that's designed to cover the premiums for the life insurance. So take for example, a hypothetical scenario of somebody that's say 60 years old and they've got a chunk, say $200,000 in premium, and they say that the purpose of the money is a plan for dying, they don't need it to live on in their retirement. Okay, well, let's say that we determine that 60 years old, they're going to be able to take, let's just say $12,000 a year on that $200,000 in premium. Okay, so about $1,000 a month. And then you go and you shop out. How much life insurance and coverage could this actually get them on? $1,000 a month in premium. And then if you're able to get them as much or more coverage with life insurance as the $200,000 annuity, then you are positioning them way, way, way better. Because number one, whatever's left over in the annuity at the time that they pass will get to go on to beneficiaries as well. And the life insurance is equal to or more than what they're currently putting into the annuity. And that's going to pass tax free. So it's a great strategy to try and use both annuities and life insurance for legacy planning. But basically you're using the chunk of money that they're saying, hey, this is just for passing it onto my heirs and beneficiaries. And you're using it to fund an annuity that covers the premiums of the life insurance policy. Now what happens if somebody isn't insurable? What do you do if life insurance is just out of the question? Now we are back to where we started and using annuities for the death benefit and actually doing that. And like I said, it's not necessarily our first choice. It's not necessarily the first option that we try and take. If they are insurable, we would try and do the insurance side of it. But if they're not, then let's use annuities. And there's some pretty cool ways that you can do that. There are annuity products out there on the market that have guaranteed roll up rates for the death benefit that over the long term should reasonably exceed what we would expect index strategies to credit the account value in an indexed annuity. So I'm thinking just offhand of two particular products and if you'd like to talk about the products, that's fine, reach out to me. One of which I know has a 7% simple roll up rate in the death benefit for up to 15 years. The other one that I know is a 6% compounded roll up rate. At about the six or seven year threshold into the policy, the 6% compounded would overtake the 7% simple. So early on, the 7% simple would actually create a higher death benefit over time. 6% compounded would obviously create a larger death benefit. And that's, we're dealing with guarantees here now because it's a roll up rate. Think of it in tandem or in context of an income rider. When you, when you have an income rider and you have a roll up rate and you're creating guaranteed lifetime income, you have a fee. So typically with these types of products there is going to be some kind of annual fee, 50 basis points, 75 basis points, 1 point, whatever the case might be, depending on the rider and the product itself. But you should expect that there's going to be a fee for that guaranteed roll up rate. Now again, 7% simple or 6% compounded over the long term will in just about every scenario outperform what we would expect an indexed annuity to credit with index strategies. So if you're thinking about it as an alternative or you're thinking about an alternative, think about if you had no death benefit roll up rider and you just had an indexed annuity within index strategies and let's say you even had some pretty favorable rates. Well, you know that there's going to be zero years. Okay. You know that there's going to be low crediting years and you know that there's going to be some pretty good crediting years. Well, by the time you bring all three of those together over the long term, the zeros, the lows and the highs and then some of those mid range credits, you're going to end up on a good indexed annuity, I would expect somewhere between 4 and a half and 6.5%, maybe 7% depending on the time frame and what kind of rates were able to be held over the the term of the policy. So mathematically 7% simple or 6% compounded would certainly beat that. And if the purpose of the money is explicitly passing it on to heirs and beneficiaries, well then fantastic, you're going to Pass on more money going with the guarantees and you can actually look at it from a worst case scenario and know exactly what you would expect to pass on to heirs and beneficiaries in 10 years, 15 years, 20 years, whatever the case might be, at the point that that client passes, you can know a bare minimum of what that would actually pay out. And because you have these guaranteed roll ups, a death benefit in the worst case scenario is going to outperform just a straight indexed annuity with no death benefit roll up rider using index strategies. Because remember, the guaranteed worst case scenario in just a plain Jane indexed annuity is, is zeros. It's that you get nothing credited for, you know, however long the policy is held. So think of them in contrast and remember, if the purpose of the money is only legacy planning is only to pass on to beneficiaries, then look at those types of products for that. It's great because there's no med exams, there's nothing crazy like that. There's typically age limitations on those. 75 is kind of around that threshold. I've seen some push it to 80, you get much past that, you're probably not going to be able to issue those types of riders. But under that you're usually looking at a pretty good scenario for those that are again, uninsurable. So that's kind of the way that I approach legacy planning from a case design perspective. Using annuities, again, trying to pass life insurance where we can because it's tax free. It's way better for the beneficiaries.

If they're not. And you can still use annuities in tandem with the life insurance to create what is in essence a tax free death benefit for the beneficiary just simply by using the annuity income to cover those.

Premiums. Excuse me, I could not think of the word premiums. But if they're not insurable, then you're back to the, you know, back to the basis of just using annuities to try and create that death benefit either by way of guarantees or like I've talked about already, don't necessarily like this strategy as much. But in straight indexed annuity for accumulation, I think is going to not outperform your guaranteed roll ups in just about any scenario. But for those that are looking at a 50 basis point or a 75 basis point fee and thinking, oh no, I don't want that, it's like you are getting the guarantees, but they may not like that. That's something to talk about, something to explain the pros and the cons with but the indexed annuity, just straight indexed annuity with no income rider, no death benefit rider, nothing like that. Just protection and growth opportunities is one way you can go. So there's kind of three strategies you can use when you're looking at legacy planning. Using annuities. All three strategies use annuities, but remember, default. Try and use life insurance if you can. That's a wrap for today. Appreciate you guys joining us for the seven Figure Annuity sales podcast and bearing with us as it's just me on here again. We'll get Chad on here in no time. They'll get settled in Colorado and and we'll have them back here in a few weeks. So excited to see you guys then. Happy selling.

Sam.