The Veterans Administration has a program that allows for a large subset of the veterans population to qualify for certain benefits that pay for costs associated with caring for a veteran or their spouse. This Aid and Attendance pension may be in addition to any pension that the service member and/or their spouse may already receive. The Housebound pension also covers certain costs associated the care and attendance to the veteran or their spouse when they are primarily confined to their residence. While a veteran or their spouse may already receive a pension, as well as these additional benefits, one cannot receive both the Aid and Attendance benefits as well as the Housebound benefits. It is important to note at the outset the difference between a pension and compensation.

 

Compensation is a sum of money that the veteran receives, tax free, for disabilities that the veteran suffered in relation to their time as a service member. The compensation is meant to make up for any loss of income due to the disability. A Pension is meant to provide additional monies to low income or disabled veterans who served during a period of war, or in a war zone. Both of these benefits are distinct from a military retirement. The benefits under these Veterans Administration programs have been in existence for over 60 years, yet many Veterans Administration officials and Veterans Administration attorneys were unaware of these benefits until recently.

 

WHAT IS COVERED

 

The Veterans Administration Aid and Attendance program allows for the payment of costs associated with paying for a caretaker to help with everyday personal functioning, such as bathing, dressing, feeding, bathroom help, assistance with prosthetic devices, et cetera. These costs are covered under the Aid and Attendance pension. The Housebound benefits cover costs associated with for assisted living for the veteran or their spouse, such as room and board, counted as unreimbursed medical expenses. The housebound individual does not have to be confined to their residence. They can be confined to a facility or a the home of a third party. The caregiver does not have to be a licensed medical provider. They can be children of the pensioner, although spouses are not included.

 

ELIGIBILITY

 

Eligibility for the program is rather simple to determine.

 

  • First, the service member had to have a discharge that was under condition that were not dishonorable.
  • Second, the service member had to serve 90 days continuous service, 1 day of which had to be during the following:
    • World War II (December 7, 1941 – December 31, 1946),
    • Korean conflict (June 27, 1950 – January 31, 1955)
    • Vietnam era (February 28, 1961 – May 7, 1975 for Veterans who served in the Republic of Vietnam during that period; otherwise August 5, 1964 – May 7, 1975
    • Gulf War (August 2, 1990 – through a future date to be set by law or Presidential Proclamation).

In addition to the service connected dates, there are maximum income amounts that the veteran may be entitled to. As with most any government means based test, it is important to pay attention to what the government considers or counts as income. Most everything is considered countable income, with the general exception of public assistance. A veteran with a spouse or other dependent is entitled to $16,851 in countable income in 2015. In turn, they are entitled to up to $25,448 in Aid and Assistance income. Finally, the veteran cannot have more than $80,000 in assets, although the veteran’s car and home may be excluded from this calculation.  

 

For over a decade it was sound and perfectly legal advice for financial advisors and elder law practitioners to advise their married clients to file and suspend their social security benefits, thereby maximizing their financial returns.  The basic advice was to advise a married couple to have the spouse who earned more through his/her lifetime to file for social security benefits at the full retirement age.  After the higher earning spouse filed, the lower earning spouse would automatically be eligible for spousal benefits and would therefore file for spousal benefits.  Once the lower earning spouse started to receive benefits, he/she would get a higher monthly benefit amount as the lower earning spouse would piggyback on the higher earnings of their spouse.  

 

At that time, the higher earning spouse would suspend their benefits and work, thereby increasing their social security benefits even more, so that way when they hit the maximum benefit age now set at 70 they would have a higher monthly benefit amount.  When the higher earning spouse hit the maximum benefit age, they would have maxed out their social security earnings and have already benefitted from a spouse who collected social security benefits in the meantime.  It all comes down to dollars and cents.  Someone has to crunch the numbers to determine if it made sense for the couple to do it, although for the majority of couples it did make sense.  

 

The question also had to be asked, when was the optimum time?  Again, someone had to crunch the numbers to find the sweet spot.  There was even a second strategy for those whom it did not make sense to do so.  The second approach was for both spouses to file a “restricted application”, whereby each spouse would only receive their spousal benefits.  This let them increase their own earnings, so that way when they reach seventy, they have maximized their social security benefits.  In either event, the couple would be able to benefit from an additional several thousands of dollars.

 

SIX MONTH PHASE OUT

        On October 30, 2015 President Obama signed the spending bill which eliminated the loophole still allows for the file and suspend practice to continue, albeit for only a short period of time.  If you already receive it at the time of the phase out, you will continue to receive it.  The law only allows for a short six month phase out, which means that by April 29, 2016, couple will no longer be allowed to collect under this method of file and suspend.  In addition, those who are 62 years of age or older on December 31, 2015 can file a restricted application for spousal benefits for the next four years.  It is estimated that this practice cost the Social Security trust fund more than nine billion dollars a year.  On an individual level, most couples netted approximately $60,000 in additional benefits.  It would take the couple until they reached the age of approximately 80 years old until they could make up that difference.  While individual circumstances change, under most scenarios it is best to wait to file for benefits.

If you can still file under the old rules, it is best to speak with an experienced elder law and estate planning attorney to determine an overall larger strategy.  But the time to act is now, any delay may be to your prejudice.

 

        Throughout the twentieth century, the Federal government took various legal steps to positively impact the lives of senior citizens, the disabled and the elderly in general.  Throughout the 1930s a variety of retirement and pension programs were enacted, most significantly social security.  1952 saw the funding for social services programs targeted for the elderly and senior citizen population.  The 1960s saw a number of progressive social legislation enacted, with 1965 as a particularly important year, with the implementation of Medicare as well as the Older Americans Act.  The 1970s followed with many funding programs expanding the legislative enactments of the 1960s.  For example, 1972 saw the funding for a national nutritional program for the elderly, which is known today as meals on wheels, while in 1973 Congress funded grants for local senior community centers.

OLDER AMERICANS ACT  

For purposes of the prevention and coordination of the national response to elder abuse, the Older Americans Act, is perhaps the most significant and comprehensive federal law to deal with elder abuse.  Currently the Department of Health and Human Services, Administration on Aging manages the various programs flowing from the Older Americans Act.  It ensures that each state has a sufficiently strong adult protective services program and a Long Term Care Ombudsman Program, which acts as a voice for residents of long term care facilities in the jurisdiction.  These programs are necessary for the state to receive funding from the federal government.

FEDERAL EFFORTS TO HELP STATES

        The Administration on Aging created The National Center on Elder Abuse in 1988 as a clearinghouse for states, experts and institutions to help detect, eliminate and remedy elder abuse.  Accurate documentation of the problem is inherently difficult, as recognizing exploitative behavior, neglectful and risky actions or inactions by caretakers is not always so easy to determine let alone recognize.  As such, estimates range from two to ten percent of the senior population, depending on the definitions and other variables.  Criminals naturally prey on the more vulnerable, such as those with dementia or cognitive impairment.  Approximately 50% of people with dementia experience some sort of abuse.  It is unknown how many of those abusers go unpunished and unrecognized.  As for neglect, a particularly disturbing example of neglect can be found here.  

Despite the problem and the various programs that Congress created in years past, some Senators recognize that the federal budgetary outlay is thin.  For example, in 2011 the national outlay to prevent elder abuse was only $11.7 million.  As such, Congress enacted the Elder Justice Act of 2009 with the creation of the Federal Elder Justice Coordinating Council, with cabinet level members to direct federal policy and to advise the White House and Congress.  Similar to the National Center on Elder Abuse, the Department of Justice also has a similar resource for prosecutors to help detect and successfully prosecute acts of elder abuse, although the resources dedicated to this endeavor are not as robust as the National Center.  In addition to the efforts of the government, a fair number of national advocacy groups help to fill the void.  Some of those same groups are funded in part by grants provided by the federal government.  By most measures the problem is so large that the efforts cannot fully address the myriad of issues that are involved.  

New York along with every other state, most United States administered territories and even The Bureau of Indian Affairs for Indian Tribes has an adult protective services enabling statute.  New York’s adult protective services statute is found in the archaically entitled Title 81 of the New York State Mental Hygiene Law.  It allows for the appointment of a guardian over an incapacitated person only after a Court makes two specific findings of fact:

1) The allegedly incapacitated person is unable to provide for his/her personal needs or unable to manage their property and financial affairs; and

2) The person cannot adequately understand and appreciate the nature and consequences of their inability.

A Court reviewing the case shall give primary consideration to a number of issues, not the least of which is the alleged incompetent’s functionability and functional limitations.  These powers should be a last resort and should only be made after considering the availability of resources that may help to avoid entering a judgment of guardianship over an individual.  Home health aides, visiting nurses, adult day care, powers of attorney and other legal enabling documents will be considered by a reviewing Court.  A Court should only grant guardianship when it is beneficial to the protected adult and no sufficient and/or reliable alternative exists.

WHO MAY FILE?  AND WHERE?

        There is a surprisingly long list of people and entities that may file for guardianship over an allegedly incapacitated person.  They are:

1) The incapacitated person themselves.  One of the requirements of the second element of an entry for a judgment of Guardianship is for the person to consent.  Certainly if the person makes a knowing and voluntary consent, there is no need to litigate the issue of incapacity.  It certainly begs the question, however, if a legally incapacitated person can even make a knowing and voluntary consent.

2) A presumptive heir to the estate of an incapacitated person.

3) The executor to an estate, to which the alleged incapacitated person is a beneficiary.

4) The trustee to a trust in which the alleged incapacitated person is a donor or beneficiary.  This is in many ways the same thing as number three above.

5) Anyone with whom the incapacitated person resides.

6) Anyone concerned for the welfare of the alleged incapacitated person.  This is where the Department of Social Services has standing to bring an action in Court to obtain a judgment of guardianship.

7) The Chief Executive Officer or designee of a facility in which the alleged incapacitated person is a patient or resident.   

The petitioner has to file the application in the Supreme Court of New York (trial court) or the Surrogate’s Court if the alleged incapacitated person has an interest in ongoing estate proceedings.

HOW LONG?

        The various requirements are controlled by statute; therefore, most guardianship proceedings take less than two months.  Most specifically, a hearing on the merits must occur within 28 days of the Court signing the initial Order to Show Cause (emergency petition), the Court must issue its Order on the matter within seven days of the hearing on the merits and the person to whom will be appointed as the Guardian must receive his/her commission within fifteen days of that.  All of these time lines can be extended by the Court for good cause, such as if the alleged incapacitated person hires an attorney to contest the basic facts of the case.  If a guardian is appointed, the Court must tailor it to the specific needs of the case.  

The Eastern District of Virginia Bankruptcy Court issued an opinion on a case with a unique factual scenario almost three years ago, on February 6, 2013 in the case of In Re Woodworth, (Bankr. E.D. Va., No. 11-11051-BFK, Feb. 6, 2013). The case is important because it speaks to the larger issue of fraudulent intent and how even when a trust settlor relies on a seemingly befitting and authoritative disclaimer against fraudulent conveyances, a Court can still find fraud. It also speaks to the vital need to consult with competent counsel for all major financial decisions, to insure that those decisions do not impact eligibility for medicaid or other government programs.

 

The case centered on a woman’s attempt, and seeming initial success, at what the Court characterized as medicaid fraud. The case involved the debtor, Holly Woodworth and her mother, Dorothy Lee Stutesman. Assuming that the facts of the opinion are accurate, it seems that Ms. Stutesman was rather poor in her money management skills. Ms. Stutesman first entrusted her husband to manage her finances and then her daughter, Ms. Woodworth, after her husband passed away. Most specifically, she first invested a very large sum of money, at least $143,000, with Merrill Lynch, although she used Ms. Woodworth’s social security number to open and listed her as the account owner. Both Ms. Woodworth and Ms. Stutesman both testified under oath that this arrangement was to protect the money from those who would prey on Ms. Stutesman’s lack of financial ability. Most importantly, Ms. Stutesman added that in addition to her desire to protect the money from potential scammers, she did not want assets in her name, in order to be eligible for Medicaid and other public benefits, if and when she should need them. In 2010, after the hit to the stock market, the parties created a trust.

 

The Bankruptcy Court found the language of the engagement letter that came along with the creation of the trust noteworthy and for good reason. Most specifically, the engagement letter stated that the trust “avoids creditors claims of fraudulent conveyance and civil conspiracy to divest yourself of valuable assets, and avoids IRS trigger for a taxable transaction.” Id. At 3. Both parties recognized that the money in the Merrill Lynch account and then trust was Ms. Stutesman’s. Ms. Woodworth filed bankruptcy due to events and factors unrelated to the trust, although she claimed that she only held title to the funds in the trust but no equitable interest.

 

FRAUDULENT TRANSFER

In addressing the very heart of the issue The Court summed up the essential holding of the case, when it addressed the trust in issue. As judged from the description of the trust in the opinion, it seems as it was not tailor made for the mother and daughter but rather a poorly drafted stock trust that was ambiguous, long winded and “internally inconsistent” with the specific design of protecting assets from creditors. While the Court conceded that the evidence did indicate the Ms. Woodworth did not ever treat the money as her own, the Court also found that Ms. Stutesman also engaged in Medicaid fraud. Towards that end, the Court determined that the form of the trust must trump the fraud and therefore the corpus of the trust was part of Ms. Woodworth’s bankruptcy estate.

 

As with any financial decision that may impact medicaid eligibility, it is always best to consult with an experienced elder law and estate planning attorney to determine an overall larger strategy.  

On December 19, 2014 President Obama signed into law a number of tax and financial measures to extend certain tax benefits. More specifically, the legislation enacted the Achieving a Better Life Experience (ABLE) Act of 2013, which amends section 529(e) of the United States Tax Code, to allow for tax-free savings accounts for individuals with disabilities. Almost a year later, almost to the day, both the Federal government and New York state both acted to expand the coverage under the ABLE Act. Prior to the most recent change, ABLE accounts had to be located in the same jurisdiction as the beneficiary.

 

The law also required state laws enabling such savings accounts. If the state did not have such enabling legislation, individuals in that state would not be able to set up such an account. On December 18, 2015, New York Governor Andrew Cuomo signed the New York Achieving a Better Life Experience (NY ABLE) Act allowing for such savings accounts in New York. On the same day that Governor Cuomo signed the NY ABLE Act, President Obama signed another spending bill that contained, among other things, legislative changes to the ABLE Act. More specifically, sections 302 and 303 of the bill allows for changes in what purchases or expenditures are permitted under the ABLE Act and allowed for beneficiaries to have such accounts in jurisdictions different than the one that they live in.

 

While one might reasonably believe that the NY ABLE Act is now not necessary, it still has much value as it allows for such accounts to exist within the state and thus subject to the various protections afforded under New York law. It would also draw in capital from other jurisdictions that do not have ABLE Act enabling legislation. All of these measures are part of an expansion of the laws that allow for the financial protections for financial and estate planning for those with special needs. Previous to the PATH Act, individuals with special needs who had savings accounts or other assets over a certain amount (generally, $2,000) would possibly be disqualified from certain governmental benefits. Savings in a PATH Act account will not jeopardize these benefits or eligibility for benefits.

 

REQUIREMENTS OF ABLE ACT ACCOUNTS

The account may be opened by the beneficiary, although any individual may pay into the account. Depending on the amount, contributions into the account may be tax deductible. In addition, you must be able to establish that the onset of your disability occurred prior to the age of 26. There is an important distinction that is worthy of note. The account holder (disabled individual) does not have to be younger than 26 to open the account, only that the disability began prior to the age of 26. There are special rules that go into effect after $14,000 per year is deposited into the account, although any number of individuals may deposit money into the account. Finally, only qualified disability expenses are permitted expenditures. In November, 2015, the Treasury Department issued interim guidelines that noted that state administrators do not have to strictly scrutinize all expenses, although it is still best for the account beneficiary to maintain receipts for all expenditures.

WHAT IS BEST FIT

Both an ABLE Act account and a special needs trusts try to accomplish essentially the same thing. Both attempt to ensure that a special needs child or person are financially planned for through various legal and financial means so as to enrich the life of the beneficiary. An ABLE Act account as well as a special needs trust also aim to protect the beneficiaries valuable governmental benefits that utilize a means based testing for eligibility purposes. While both products roughly accomplish the same thing, one may be better at accomplishing one thing rather than the other.

 

TWO DIFFERENT MEANS TO ONE END

 

Special needs trusts are more suited to non medical or non educational expenses, such as simple necessities in life, like clothes, hygiene products, and other things that help to enrich the life of the beneficiary. If the expense is indeed related to the disability, such as educational materials or tuition costs, the ABLE Act account would be better, as expenditures from a trust are considered income to the beneficiary. It is important to note that with careful planning, many expenditures from a special needs trust can likely be tax deductible, so the tax implications can be mitigated. ABLE Act accounts also generally require less oversight and involvement from either the beneficiary or beneficiaries caretaker. There can only be one ABLE Act account per person.

 

A Special Needs Trust, only the other hand likely requires a trustee to manage it and requires more involvement in its management . It is important to note that this is not always true, as Special Needs Trusts can be simple to setup and manage. The level of complexity and rules written into any trust document itself are a function of how much management and oversight as well as forethought and care are put into it by the settlor. If the settlor wants to set the trust up to cover a broad swath of individuals, such as all alumni of a particular school, such as created for the Hershey School, rather than just one grandchild, for example, naturally there will be variety in the level of complexity. In addition, if the trust is created by a third party, there are no practically no limitations on the amount of money that can be used to create the trust. The downside to that is that the funding of such a trust has tax implications. First there are gift tax implications of any money given to the trust. In addition, income generated from the assets or money provided to the trust is taxable income. New York allows up to $140,000 in tax deductions when deposited into an ABLE Act account. If the owner of an ABLE Act account passes away with money in it, that money must be given to the state to help pay back any public benefits that they recieved since opening the account.

The use of a 529 account or a special needs trust can best be utilized in conjunction with a larger estate planning strategy. As with any estate planning decision, it is best to consult with an experienced estate planning attorney.

On December 18, 2015 President Obama signed the Protecting Americans from Tax Hike (PATH) Act, which made permanent, among other things, three rather popular charitable tax incentives were set to expire January 1, 2016. The most important provision of the PATH Act for estate planning purposes is the continued allowance of rollover of individual retirement account distribution. This particular measure came into law in 2006 as part of the Pension Protection Act as a temporary measure. It expired and brought back to life several times over in the last nine years. The measure has shown itself to be a wildly popular measure, with approximately $140 million in charitable donations in the first two years and hundreds of millions going to colleges and universities in the last nine years. It seems likely that with the permanence of the new law, charitable givings will likely increase.

 

REQUIREMENTS OF CHARITABLE ROLLOVER

 

There are some important rules that are necessary to satisfy in order to qualify for the tax deduction benefits. They are:

 

  • The IRA owners must be at least 70 and one-half years old. A person can withdrawal from their IRA at age 59 and one-half but withdrawal from the IRA is mandatory beginning at 70 and one-half. These distributions are subject to income taxes, although if the same distribution is paid directly to a qualified charity and meets the other necessary requirements, it is treated as a nontaxable income distribution.  
  • The tax deductions stop at $100,000 per year in any one calendar year. An individual can donate more, they just have to be aware that they are subject to tax liability for any additional monies withdrawn from their IRA.
  • The money must go to a qualified charitable organization. The charity cannot be a donor advised fund, supporting organization or private foundation of any sort.
  • The money can only be withdrawn from a traditional Individual Retirement Accounts or Roth Individual Retirement Accounts. Money withdrawn from a 401(k) plan, pension plan or other retirement account, such as a 403(b) plan does not qualify for tax free treatment.
  • The money must go directly from the IRA to the charity. The money has to go directly from the plan administrator to the charity.
  • There can be no gifts or other incentives flowing from the charity to the individual donor.
  • There must be a bank record or written receipt from the charities.

It is important to note that if a person makes a nondeductible contribution to their IRA during the same year as they claim benefit from the charitable rollover provisions, there is a special IRS rule treating the charitable giving to come first from taxable monies, rather than proportionally allocated from taxable and nontaxable monies. It is further important to note that the mandatory minimum distributions from the IRA can be paid directly from the plan administrator to the charity and still qualify as a non-taxable distribution. Failure to withdrawal the mandatory minimum distribution could result in a penalty of up to 50%. The downside, minimal as it is, is that the donor loses his/her right to deduct their charitable contributions, assuming they itemize in the first place.

Sumner Redstone is an entertainment business mogul with a majority share ownership of CBS entertainment and Viacom, and through Viacom, BET and Paramount Pictures, all through his majority ownership of his family business, National Amusement, which originally started out in the drive in movie theater business during The Great Depression.  In just the last few weeks a case against Mr. Redstone by the IRS presents an oddity in the law, which may make many people shutter.  More particularly, the IRS issued a Notice of Deficiency for a taxable event from 1972 – over 40 years later.  

 

The nature of the case revolved around a transfer of shares in National Amusement Corporation in 1972 to separate trusts set up for the grandchildren of the founder, Sumner Redstone’s father Michael Redstone.  Sumner set up one trust for his kids while his siblings set up separate trusts for their kids.  At the time the transfer of interfamily stock was of a insignificant amount that passing them from personal ownership to a trust did not even require a tax return.  One can and should ask about the concept of a statute of limitation.  

 

Apparently, as the case against Mr. Redstone shows, the IRS does not have a statute of limitation for unfiled tax returns.  26 U.S.C. § 6501(c)(1) establishes that when a taxpayer files a fraudulent tax return, (c)(2) otherwise attempts to avoid tax liability, or (c)(3) fails to file a tax return, there is no statute of limitation.  Mr. Redstone has an impressive educational pedigree, where he graduated from first in his class from the Boston Latin School and then graduated Harvard in only three years in 1944, which was actually common at the time.  After graduation he served as an officer in the United States Army, helping to decode Japanese messages.  He attended Georgetown Law School after the war and then received his LL.B. in 1947 from Harvard Law.  After working for various governmental departments followed by private practice, Mr. Redstone went to work for the family business, which was booming by then.

 

STILL OWES TAX FROM OVER 40 YEARS LATER

 

Mr. Redstone’s background is important because it highlights that he is trained on how to respond to and deal with an investigation by the IRS.  The Tax Court noted several noteworthy facts, or material evidence, which speak to the issue of why Mr. Redstone was not found to have acted fraudulently with respect to the failure to file tax returns for a gift that Mr. Redstone gave to his children to set up a trust for their benefit.  What mattered to the Tax Court, as noted in its opinion, is that Mr. Redstone did not avoid the efforts of the IRS to investigate his gift of family stock to his children.  Indeed, on two separate occasions, Mr. Redstone made himself available for the IRS to investigate the gift.  First, in the wake of the Watergate scandal a number of political donors were investigated by the IRS.  At this time he fully cooperated and filed all tax returns consistent with his tax advisor’s advice both before the Watergate investigation and following.

 

OTHER DEFENSES

       

When Mr. Redstone was once again investigated in 2011 by the IRS for the gift transfer, he cooperated again.  At that time, he may have been entitled to refuse this investigation by virtue of 26 U.S.C. § 7605(b), which bars a second investigation by the IRS.  Prior to trial, however, Mr. Redstone’s attorneys sought to have the matter dismissed on the doctrine of laches, which is an equitable concept that requires a case to be dismissed if the moving party sits on its rights to the prejudice of the respondent.  The Tax Court dismissed this argument.  The final outcome is that the valuation of the transfer of stock had to be revalued due to events that occurred subsequent to the 1972 transfer.  Consequently, the Tax Court imposed tax liability for the 1972 transfer.  It further ruled that Mr. Sumner did not intend to defraud the IRS or act to avoid tax liability with the 1972 transfer.

       

This case is important, because it speaks to the great importance of planning any gift transfer to a trust.  As with any estate planning decision, it is best to consult with an experienced estate planning attorney.

 

Deferred income annuities are a financial product that, by definition, are paid in one premium and payout after at least one year after purchase. While they have been around for quite some time, although they are only beginning to come into their own as a part of a sound retirement strategy. Deferred income annuities are more colloquially known as longevity insurance, especially when purchased by retirees for when they reach 80 to 85 years of age. Much of the increase in sales for longevity insurance can be tied to an IRS bulletin formally published in The Federal Register on July 21, 2014 that allows for the recipient of the deferred income annuity to defer taxation until the age of 85. As with any formal federal rulemaking determination, there is a long period of time for study and public comment. As such, on February 2, 2010 the Departments of Labor and Treasury publicly requested comment on the issue of allowing for use of these annuities, with a second round with a specific regulation tied to it, that commenced on February 3, 2012.

 

HYRBRID ANNUITY

 

Traditionally there were generally two types of annuities. The first is the variable annuity with guaranteed benefits and the second type is the immediate annuity. The variable annuity with guaranteed benefits is wildly popular, with $39.8 billion in sales in just the first quarter of 2011 alone. Often these annuities do not encourage or sometimes even permit the beneficiary to tap into the annuity until years after the initial purchase.

 

One of the complaints about this type of annuity is the rather large costs associated with them and that these costs are not usually set in the contract. Rather they change over time, based on market conditions and other variables. As a result, despite the extremely lucrative market for the variable annuity, it is shrinking in size just the same. The immediate annuity on the other hand pays out in many ways like a life insurance contract in reverse. In life insurance an insured pays the insurance company a premium for many months and years. The insured’s death triggers a pay out. The immediate annuity, on the other hand, works with the annuitant paying an investment company a one time premium and the investment company pays the annuitant a specifically defined stream of income over time. The deferred income annuity is a hybrid between the two annuities. Like an immediate annuity, the stream of income is specified in advance, although like a variable annuity they do not pay out for quite some time.

 

GROWING IN POPULARITY

 

While they only captured approximately $2 billion dollars of the annuity market in 2014, they grew in comparative strength by 35% compared to 2013. Compared to the overall variable annuity market, which stood at $140 billion in 2014, they are small fish in a big sea. The overall annuity market is a whopping $235.8 billion. Given that the deferred income annuity was only offered by three insurance companies in 2011 but 16 in 2015 it seems likely that this product will grow in overall percentage of the market place. In addition to the tax treatment noted above, further refinement of the product occurred. For example, in earlier policies, if an annuitant passed prior to payout, he/she forfeited this money. Today’s policies often have a death payout as well as protective measures against inflation.

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