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Author: rpatwa1 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76106  
Subject: Getting money out of Annuities (from the dead) Date: 12/23/2001 8:38 AM
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It's been a tough year for me. The house I grew up in caught fire and exploded (hit the gas line), killing my father and brother. I'm trying to piece together the financial life of my dad so my mom (who luckily was out of town) can live easily for the rest of her life.

My dad had several variable annuities (many of which I have no records of, but the insurance agent mentioned) which I'd like to get the money to my mother.

I've read about these here as well as moneycentral.msn.com and everyone agrees that annuities are not the best investment. My mom plans to work until she's no longer able, so annuities don't seem to be a good investment for her.

How can I get this money out of the annuity? The mortality clause should give us the whole value, right, but it's taxed at income tax levels. Is it worth keeping it as an annuity to avoid this tax?

It's been a crash course in annuities for me, and I appreciate any feedback I get. Thanks,

rahul
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Author: rpatwa1 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 32886 of 76106
Subject: Re: Getting money out of Annuities (from the dea Date: 12/23/2001 8:49 AM
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if you wish to e-mail me directly, and I can post a summary of what I've been told, i'm at rahul_patwari@yahoo.com. Thanks again.


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Author: peppermintpatty Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 32887 of 76106
Subject: Re: Getting money out of Annuities (from the dea Date: 12/23/2001 9:59 AM
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rahul -

First, sorry for your loss!

Second, the annuities may still be valuable to your mom. While you may have read a lot about annuities, you've still only seen the "anti" bias, and not learned of any of the benefits offered by annuities.

There are a number of details I don't know about that can make a difference in which course of action might be better for your mom. Before sweeping aside any possible choices, why don't you learn if
(1) mom will work, (2) mom needs more income now, (3) mom needs a lump sum now, (4) mom might pay more taxes, (5) mom's comfort with investing in any particular product, to name a few. Armed with this info, making suggestions would be more relevent to her particular needs!

Any more detailed questions?

With sympathy, PP

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Author: rkmacdonald Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 32888 of 76106
Subject: Re: Getting money out of Annuities (from the dea Date: 12/23/2001 2:09 PM
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Author: rpatwa1 Date: 12/23/01 8:38 AM Number: 32885
It's been a tough year for me. The house I grew up in caught fire and exploded (hit the gas line), killing my father and brother. I'm trying to piece together the financial life of my dad so my mom (who luckily was out of town) can live easily for the rest of her life.

What a horrible thing to happen!! I feel so sorry for your loss! I'm glad your Mom was out of town.

My dad had several variable annuities (many of which I have no records of, but the insurance agent mentioned) which I'd like to get the money to my mother...How can I get this money out of the annuity? The mortality clause should give us the whole value, right, but it's taxed at income tax levels. Is it worth keeping it as an annuity to avoid this tax?

I'm no expert in annuities, but I do have a personal experience to share. When my father died a couple of years ago he had an annuity, and it passed directly to the beneficieries (the three children) with several options. We could take our share of the money as a lump sum, have it spread over five years of payments, delay the lump-sum payout for five years, or annuitize it and receive payments over the remainder of our lives.

Assuming your father's annuities were similar to ours, they were purchased with after-tax money, so one key thing to find out is what the cost bases are, because you will only have to pay income taxes on the gain. For instance, if your father paid $50,000 for an annuity and it is worth $75,000 now, income taxes will only be owed on the gain of $25,000, and not the whole amount.

However, as far as I know, every annuity is governed by its contract and there are many different arrangements, so you really have to find out the companies who sold the annuities to your father and ask them for all the details.

Again, I'm sorry for your loss.

RK

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Author: rahulpatwari Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 32889 of 76106
Subject: Re: Getting money out of Annuities (from the dea Date: 12/23/2001 5:23 PM
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Thank you for your sympathy.

>(1) mom will work,

She plans to keep working, so she'll always be in a higher tax bracket than capital gains tax.

>(2) mom needs more income now,

She doesn't need any money right now.

>(3) mom needs a lump sum now,

No, she doesn't need that right now, either.

>(4) mom might pay more taxes,

More taxes for what? For cashing in on the death benefit of the annuity? Certainly she'll do that. I figure there are two options:
1. Cash in right now. So we pay income tax level taxes on the
money, then invest it however we'd like and pay capital gains
tax on future earnings.
2. Let it go, she'll pay income tax level taxes when she retires
anyway.

>(5) mom's comfort with investing in any particular product,

She has limited investing experience, less than I do. But at least I come to the motley fool every now and then. I'm willing to help (or completely manage) or we'd give it to an investment adviser that my parents trust.

Seems like given this situation, annuities are only a bad solution. What's the UP-side, there must be an UP-side.



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Author: peppermintpatty Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 32894 of 76106
Subject: Re: Getting money out of Annuities (from the dea Date: 12/24/2001 9:57 AM
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rahulpatwari -

As you have outlined you mother'sd position as needing neither a lump sum or income now, she could postpone cashing the annuity, allowing more tax deferred growth. If it is a variable annuity it has a number of investment options, including a "fixed interest" account that might be suitable for a no/low risk person to use for the funds. Why don't you meet personally with a representative from the insurance company for educational purposes. Have the rep explain all the options the ramifications of each. Then mom & you can deliberate on the merits of each course of action armed with complete, detailed info?

Best wishes, PP

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Author: jtcnet Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 32907 of 76106
Subject: Re: Getting money out of Annuities (from the dea Date: 12/25/2001 6:21 PM
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My Father passed away about five years ago and he had several annuities. What I remember (it was five years ago, so a little CRS), that there were some conversion options that my mom could make and some buy out options. It differed with both annuties he owned.

I agree with PP. Find out from the insurance company exactly what the options are. Be careful - since the annuity holding company probably doesn't want to lose your money so they may be biased on which option to take. I also made sure to be in the middle of the discussion, since mom did not like high pressured insurance sales people.

Jim

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