Gradually transfer an inheritance to your beneficiaries

BY ANDREW STEWART

So, this is it, the point of no return. When we begin deteriorating towards our final breath simple actions such as going from a bed to a chair, can become exhausting. We’re born, we live, we die. Few things are so concrete. And yet, while we happily share countless stories about the start of life and all that’s in-between, the end is a subject we’re less inclined to talk about.

Of course, not everyone ends up in palliative care or even in a hospital. For some people, death can be shockingly sudden, as in an accident or from a cardiac arrest or massive stroke.

When you pass away, the proceeds of your life insurance and/or savings accounts are traditionally paid to beneficiaries as a lump sum. But you may prefer to have them receive this life-changing generational wealth more gradually. Maybe you are worried about how your partner or children will manage the finances once you’ve passed into the afterlife. What if you’re a single parent and your children are young or inexperienced at managing money. Or you’re a strong believer in a little bit at a time over a long period is more beneficial than a lump sum.

By using a Gradual Inheritance Strategy, you gradually transfer your death benefit proceeds to your beneficiaries by purchasing an annuity. The annuity will pay out the death benefit in a series of guaranteed payments, over some time of your choosing. Let’s take a quick recap of how annuities work and the different options available.

A payout annuity is simply a lump sum investment made to an insurance company, and in turn, they will provide a guaranteed income. The income is calculated and based on factors such as the deposit amount, interest rates, age, gender, and the set time of your choosing. There are four main options to select from:

1. Life Annuity: Income payments are made as long as the annuitant lives
2. Term Certain: Guaranteed income payments are for a specific period of time, ranging from 5-30 years (available for non-registered funds only)
3. Term Certain to Age 90: Guaranteed income payments are made to the annuitant up to and including age 90.
4. Joint Life Annuity: The policy is set up with two annuitants on the contract. Income payments are made as long as one of the annuitants are living.

Real-life example:
Marie has a $500,000 life insurance policy. She has named her son Lebron as the beneficiary but is concerned that a large sum of money would be difficult for him to handle with all the temptations of his friends. Marie would prefer that Lebron get a small lump sum to enjoy at her death and the rest of the death benefit be paid to him over a 20-year period. Marie decides to use the Gradual Inheritance Strategy and specifies that 10% of the death benefit be paid at her death and the remaining 90% will be used to purchase a 20-year term certain annuity. This would pay Lebron $50,000 when she passes and $2,237.60 monthly for the next 20 years.

The Gradual Inheritance Strategy is a simple way to provide control and guidance to your loved ones even from the afterlife. The added ability to privately distribute proceeds outside of your will and the flexibility to provide instructions for multiple beneficiaries is only matched by a formal trust. Formal trust costs money to set up, complex to establish, and have ongoing management fees. This strategy has none of those and is guaranteed to provide predictable income payments for the period of time you specify.