Many people who have minor children or beneficiaries with no money management expertise struggle with how best to transfer their wealth to the next generation without the risk of  their heirs spending it frivolously and depleting the wealth that was accumulated by hard work over many years and was meant to protect the future of their heirs.

While you can set up trusts in your will and direct the distribution of assets by your executor to ensure against this risk, another alternative is to use annuity settlement options offered by life insurance companies. By using this option you can automatically transfer the death benefit of an insurance-based investment to an annuity for the beneficiary.

This solution is ideal in the following situations:

  • You want your beneficiaries to receive the money you leave for them over a period of time or at a certain age because you have concerns about their spending habits or lack of money management expertise.
  • You have minor or financially dependent beneficiaries.
  • You want some beneficiaries to receive the money all at once, and others to receive it gradually.
  • You want to leave money to a charity by making annual donations
  • You want to control how your legacy is distributed
  • You want your legacy to skip a generation and go directly to your grandchildren.

If you own a life insurance policy, segregated funds or term certain annuity contract issued by a life insurance company you can achieve any of the above objectives by simply choosing the annuity settlement option by way of completing a simple form. This will allow you to gradually distribute your inheritance to your beneficiaries without setting up a formal trust and with no fees.

By choosing the annuity settlement option, the death benefit from your life insurance or segregated fund policies is used to purchase an annuity which is a series of regular, periodic payments that provide a steady, reliable source of income for life (life annuity) or for a specified period (term certain annuity). Since the annuity income is paid to a name beneficiary, it will not form part of your estate and it will bypass probate and estate administration fees**.

Since beneficiary designations are not public information (unlike wills), only you, the insurance company and your beneficiaries will know about the arrangements made. This can be very attractive if you want to distribute assets to one beneficiary over time and to others in a lump sum. This way you can ensure that information is not included in your will and stays private and only the affected beneficiary knows about it.

The annuity settlement option is very easy to set up and can be changed at any time if you change your mind with regards to the way you want your estate to be distributed.


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