Repositioning Your Assets to Reduce Your Tax Liabilities

Assets such as CDs, Money Market Accounts, Stocks, Bonds, Mutual Funds and Annuities are generally not efficient vehicles for transferring assets from one generation to the next. They often pass to the next generation with tax and/or probate consequences.

What is Probate?

Probate is the process through which the court makes sure that, a decedent’s will is valid, debts are paid and assets are distributed according to decedent’s will, in absence of a will, then according to state law - it is the settling of a decedent’s estate.

Using the current national average, approximately 10% of an individual’s wealth is lost in the probate process.  Efficient transfer of wealth should avoid or reduce taxes and probate costs.

Wealth transfer does not necessarily require new money.  It could simply be the repositioning of existing assets or dollars.  Let’s look at an example with a Fixed Annuity:

According to a recent LIMRA study, approximately 89% of annuity holders die with the annuity intact, meaning they never take any form of distribution.

What is a Fixed Annuity?

An annuity is a financial contract between you and an insurance company providing you with a series of income (often during retirement) over a certain period of time or for life.  In a sense, it is a retirement vehicle used to supplement your retirement income.  You pay premiums (often a single sum), the insurance company invests them and provides you with competitive interest rate that is guaranteed for a set period of time.  All risks are assumed by the company; you will be provided with income when and if needed.  Annuity premiums are not tax deductible, but interest earned are tax-deferred.  Gains on an annuity are taxed to the owner when the distributions are received during owners life, or to the beneficiary after the owner's death.  Penalties may apply on premature distributions.  Your sales representative will be able to answer all your annuity questions.

Scenario – Mary, age 65 has a fixed annuity that was purchased when she was 40 years old.  Her total after-tax premiums paid are $50,000 and her annuity value is currently $100,000.  Let's look at a common strategy she may utilize versus an alternative strategy she should take to maximize her  inheritance to her beneficiary.

Common Strategy  
Annuity Value at Death $100,000
Initial Premium (cost) -   50,000
Taxable Gain $  50,000
Beneficiary Tax Bracket x        33%
Taxes Due $  16,500
Net Inheritance to Beneficiary (after taxes) $  83,500

Since taxes must be paid on the gain in annuities at death, a Single Premium Whole Life policy may be a more efficient way to transfer wealth.

Alternative Strategy  
Annuity Value $100,000
Initial Premium (cost) -   50,000
Taxable Gain $  50,000
Owner’s Tax Bracket x        25%
Taxes Due  $  12,500
Net amount to Owner (Female age 65, non-tobacco user)   87,500
Net Proceeds from Annuity Surrender   $  87,500
Death Benefit of EstateWise Platinum SPWL $180,056
Increase Inheritance to heirs at Death = $96,556 or 116%
($180,056 versus $83,500)

By using the alternative strategy (repositioning assets):

  • the overall “tax-liability” was reduced
  • the proceeds passed 100% federal and state income tax free
  • the inheritance was increased because the death benefit in the example is $96,556 GREATER



Our content is created for educational purposes only. This material is not intended to provide, and should not be relied on for tax, legal, or investment advice. Vantis Life encourages individuals to seek advice from their own investment or tax advisor or legal counsel.