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Scott Thomas, ChFC®, CAP®, CKA®, RICP®

Want to Do Some Really Kind Planning For Your Family?

Think of deferred income tools like IRA and non-qualified annuities at the time of your death as Cancer.  Why?  Here is the painful truth about “income with respect to decedent” or IRD as tax people call it.  While the death taxes are huge now millions so few have to plan for death taxes anymore, however many have real issues with IRD.

Here is problem illustrated and one possible solution.  Please seek out professional advice on this complex subject.

Eileen buys $50,000 non-qualified annuity and over several decades grows to $300,000 with heirs responsible for $250,000 gain even though paid as death claim. I know it does not make sense to me either.  The gain is classified as ordinary income and loaded on top of any income beneficiary already has such as W-2 wages or self-employment. It is almost certain to bump heirs into top bracket. Also causes all the current income to be taxed higher rate as well. There is a stretch method and some alternative payouts that could lessen the damage from large lump sum. Get help and do not try to read up on all the options and figure these out.

Ok let’s ask different questions to see if there are more reasonable and appealing options.  Does Eileen need Long-term Care Insurance and if so is she healthy?  Does the annuity represent a desire to leave more money to son? If so would there be more effective way both tax and practical money for end of one’s life? One possible option is exchange tax-free one annuity for another with rider or tied in hybrid approach to long term care funding.  In the hybrid example the annuity would pay into life insurance policy with significant monthly benefits for home care or assisted living or nursing care and provide those dollars tax-free.  Bottom line it is moving taxable asset to a huge bucket of tax-free extended care benefits. Maybe you work with Eileen or perhaps Eileen is you. Getting this done right matters a lot. Call me if you would like to convert your toxic tax assets to tax free extended care benefits.

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