Affect on Legacy of Life Insurance Annuity

Submitted by James Mitchell on Fri, 2009-06-05 03:18

Here’s the scenario:
• Dormant life insurance with cash value of $117k which could buy a $7k/yr annuity
• RIRA and TIRA with combined values of $1,500k
• Withdrawals of $50k per year from IRAs for living expenses
• Analyses show this will produce an expected legacy to the will/trusts of $1,000k.

Option 1:
Keep the life insurance with death benefit of $180k and allow this to transfer to will/trusts at death.

Option 2:
Buy an annuity with the life insurance and reduce monthly withdrawals from IRAs. This would allow a greater IRA legacy to the will/trusts but a reduced (zero) legacy from life insurance.

Is one option preferred over the other? Why?

Thanks, James



Submitted by Al Fry on Sat, 2009-06-06 17:02

The LI death benefit would be income-tax free, in most all cases.



Submitted by James Mitchell on Sat, 2009-06-06 17:34

Would you advise to keep the LI unless it becomes needed for income and just take more out of the IRAs?

Thanks



Submitted by Al Fry on Sat, 2009-06-06 18:43

That would br my take, in that life insurance is a more favorable asset to die with than are IRAs and annuities, purely tax-wise.



Submitted by James Mitchell on Sat, 2009-06-06 19:00

Thanks. I appreciate your input. James



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