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Should You Buy an Annuity for Your Grandchild?

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10.02.2020

A trust is one way to leave a legacy, but you’ll need to hire a lawyer to draw it up. And there may be ongoing management fees that will reduce the amount your loved ones will receive.

There are simpler, cheaper ways to leave a legacy. For instance, you can buy a cash-value life insurance policy or fund a 529 college savings plan.

But one of the best options, an income annuity, is usually overlooked. It’s an ideal vehicle for leaving a legacy. An annuity offers unique benefits. It’s the only gift guaranteed to keep on giving for a lifetime.

Here’s how it would work for a grandchild. You buy a longevity annuity — also called a deferred income annuity — for your grandchild. This type of annuity defers payments until a future date that you choose.

For example, your grandchild is 10 years old. You make a $100,000 deposit. You decide to have income payments begin when your grandchild reaches age 25 and continue for the remainder of his or her life.

One top insurer will guarantee a payment of $481.68 per month, with $335.73 of it taxable. If your grandchild lives to age 85, he or she will collect $346,809.60: $246,809.60 in interest plus the $100,000 of principal.

An income annuity has no cash value, and that’s something that can be both a pro AND a con. As a pro, after you’re gone, your grandchild won’t be able to blow the money on a fancy........

© Kiplinger