The Annuity Advisor

by Olsen, John L.; Kitces, Michael E.

• ISBN13: 9780872186712
• ISBN10: 0872186717
• Edition: 1st
• Format: Paperback
• Copyright: 2005-09-30
• Publisher: Natl Underwriter Co

Summary

Provides an objective and impartial view of annuities as a tool for implementation. This book is a balanced, thoughtful, well organized discussion of what annuities can and cannot do, what they cost and what risk management features they offer.

Author Biography

John L. Olsen, CLU, ChFC, AEP is a financial and estate planner practicing in St. Louis County, MO. John has been involved in the financial services industry since 1973. AND Michael E. Kitces, MSFS, CFP«, CLU, ChFC, RHU, REBC, CASL, is Director of Financial Planning for Pinnacle Advisory Group, a private wealth management firm located in Columbia, Maryland.

Table of Contents

Dedications	iii
Acknowledgements	v
About the Authors	vii
Foreword	ix
CHAPTER: 1 Basics of Annuities	1	(18)
What is an annuity?	1	(1)
Types of Annuities	1	(1)
How the Annuity is Purchased	1	(1)
When Annuity Payments Are to Begin	2	(1)
How the Cash Value in the Annuity is Invested	3	(4)
Parties to the Annuity Contract	7	(1)
Types of Annuity Payouts	8	(2)
The Annuity as a Tool	10	(1)
Overview – The Annuity as a Problem-Solving Tool	11	(2)
Is an Annuity the Right Tool, and, if so, Which Kind Will Do the Best Job?	13	(6)
CHAPTER 2: Taxation of Annuity Benefits During Owner's Lifetime	19	(20)
Amounts Received as an Annuity	20	(1)
Amounts Not Received as an Annuity	21	(2)
Deferral of Tax on Undistributed Gain	23	(1)
When Does a Deferred Annuity NOT Enjoy Tax-Deferred Treatment?	24	(7)
Gift or Sale of an Annuity	31	(8)
CHAPTER 3: Taxation of Annuity Death Benefits	39	(18)
Estate Taxation	39	(3)
Income Taxation of Death Benefits	42	(15)
CHAPTER 4: Basic Costs of Annuities	57	(16)
Cost Factors in Immediate Annuities	58	(2)
Cost Factors in Deferred Annuities	60	(8)
Variable Deferred Annuities	68	(5)
CHAPTER 5: Optional Costs in Variable Annuities	73	(16)
Living Benefits	73	(11)
Death Benefit Enhancements	84	(1)
Impact of Withdrawals on Death Benefit	85	(1)
Whose Death Triggers the Death Benefit Guarantee?	86	(3)
CHAPTER 6: The Variable Annuity as an Investment	89	(16)
The Model	89	(16)
CHAPTER 7: Index Annuities	105	(14)
Basics of Index Annuities	106	(1)
Index Annuity Terminology	106	(2)
Index Annuity Designs	108	(6)
How Can the Insurance Company Do All This?	114	(2)
Which Index Annuity Design is Best?	116	(3)
CHAPTER 8: Annuities and Trusts	119	(12)
Problematic Annuity Structuring with Trusts	119	(1)
Annuity-Trust Situations	120	(11)
CHAPTER 9: Annuities in Estate Planning	131	(14)
Avoidance of Probate	131	(1)
Providing Guaranteed Income to Heirs	132	(13)
CHAPTER 10:The Great Debate: Are Annuities Good or Bad?
(Part One: Arguments in Favor of Annuities)	145	(16)
Arguments in Favor of Deferred Annuities	146	(12)
Arguments In Favor of Immediate Annuities	158	(3)
CHAPTER 11:The Great Debate: Are Annuities Good or Bad?
(Part Two: Arguments Against Annuities)	161	(14)
They're Too Expensive	161
Annuities Should Never Be Used to Fund an IRA or Qualified Plan	16	(148)
Annuities are Sold Mostly Because of the High Commissions They Pay	164	(2)
Only 2% (or Some Other Low Percentage) of Deferred Annuities are Ever Annuitized	166	(1)
Arguments Against Immediate Annuities	167	(4)
CHAPTER 12: Overview: The Annuity as a Planning Tool	171	(4)
APPENDIX A: Actuarial Tables for Taxing Annuities	175	(16)
Table I	177	(1)
Table II	177	(4)
Table IIA	179	(2)
Table III	181	(3)
Table V	184	(1)
Table VI	184	(4)
Table VIA	186	(2)
Table VII	188	(3)
APPENDIX B: Examples of Exclusion Ratio Calculations	191	(6)
Single Life Annuity	191	(1)
Refund or Period Certain Guarantee	192	(2)
Joint and Survivor Annuity (Same Income to Survivor as to Both Annuitants Before Any Death)	194	(1)
Joint and Survivor Annuity (Income to Survivor Differs from Income Before First Death)	195	(2)
APPENDIX C: Internal Revenue Code Sections	197	(22)
Section 72	197	(18)
Section 1035	215	(1)
Section 2033	216	(1)
Section 2039	216	(3)
INDEX	219