Let's start by saying that estate planning lawyers may or may not recommend annuities for their clients, but they do weigh in on how to title them during life so that they transfer correctly at death. Annuities may be a great choice for you. This particular article offers some food for thought on making decisions regarding whether or not annuities are right for you, just some things to think about.
Many people love the idea of an annuity because it can provide a steady income during your retirement. They can be especially helpful for those who are approaching retirement age and don't already have a good 401(k) or IRA in place, for example. On the other hand, there are some real costs associated with an annuity, and you'll want to factor them in when making your decisions regarding this type of investment. No matter purpose they serve, you want to ensure that your estate planning documents are up to date so that someone you trust would have legal authority over those assets if you became incapacitated.
The amount you pay in annual fees will depend on several factors, including the company you use and the type of annuity you purchase. A variable annuity, for example, will be subject to higher annual fees than a fixed annuity. It's not unusual for annual fees to add up to 3% a year or even more. This definitely needs to be taken into consideration when planning for what your eventual payout will be. Losing a chunk of your money every year will affect the overall value of your annuity. Be sure to have your estate planning attorney compare annual rates for different annuities that you might be considering.
Having your annuity money sitting there can provide quite a temptation when you find yourself in need of cash. You may still have access to the cash, but not for free. If you want to pull money out early, you will likely face a pretty steep surrender charge, which is usually higher earlier on in your account's history. For example, you could be charged as much as 20% for taking money out in the first year, with the percentage dropping each year after that.
Don't forget that annuities are insurance products. Even when working with a reputable estate planning attorney, you will need to purchase your annuity through some kind of insurance sales person. This sales person or broker will be entitled to a commission for selling you the product. This commission will vary based on many different factors, but it's not unreasonable to expect to pay 10%.
Again, an annuity might be a great option for your situation. These are just some considerations to make. For a fuller understanding, meet with your lawyer to review your needs and options. Either way, your annuity needs to be coordinated with your overall estate plan.