Selling an Annuity W/ Unique Trust Situation

[Franz Kafka]

She is a trustee and not a beneficiary. If she has the financial power of attorney spelled out by the trust, then she can transfer the money owned by the trust to wherever she believes best serves the needs of the beneficiary. That does NOT mean she has the power to do whatever she feels like such as giving herself a split! That is an extortion of third party property. She can pay herself a reasonable compensation for managing the trust but nothing more! In regards to medicaid she needs to make sure whether the payment from the trust to the nephew would disqualify him from receiving the benefit.

Missed the Special Needs part. Strike last sentence.

 

[sixty6]

I got distracted, but this is all happening in IL (still reading the website)

 

[scagnt83]

Yes the laws will vary by state to an extent. But there are a couple of issues your dealing with here.

First as the trustee, she has a fiduciary responsibility to look after the care & well being of the beneficiaries as defined by the provisions of the trust.
The provisions of the trust can be nearly whatever the creator of the trust deemed to be important to the situation.
So not only is this legal matter state specific, but its specific to the wording and definitions inside the trust as well.

In my opinion (im no lawyer) Medicaid is not a permanent thing at all. Medicaid has pretty specific requirements that have to be met (which are state specific). And they can change at the stroke of a pin.
Financial requirements are usually considered first and foremeost; since he has a trust that would be able to fund his care (or a portion), application to medicaid might be declined if she discloses the trust to them. If she doesnt disclose the trust in the application, it might be possible that she would be committing Medicaid fraud.
Plus we all know what the standard of care is like in Medicaid facilities.

Then there is the issue of separation of financial interest between the trustee & beneficiary. As a general statement in trusts; the trustee is to have no financial interest in the trust other than receiving a fee for their service. The beneficiary is the only one who usually is to "benefit" from the trust, hence the term. But the trust might be able to dictate that the trustee receives the proceeds if the beni is deceased. ...

Their should be a "protector" of the trust; usually an official at the bank or institution where the trust is held is named protector. If the trustee does not abide by what the trust dictates, the protector (if they are informed of it) will fire and replace the trustee. But they have to be informed of this.

Some special needs trusts will name an "advocate" for the child; someone other than the trustee that helps look over the wellbeing of the beneficiary & can inform the protector of any wrong doing by the trustee.



After all that, you have the issue of what the most appropriate financial product is for the trust. Just because he has been needing $500/month, does not mean that he will always need just $500 per month.

What kind of annuity are you talking about? It sounds like a SPIA, which will lock up the money. So you are taking it from a totally liquid investment to a totally non-liquid investment... probably not the best idea for all of the money.

Oh and if your $500/month income assumption was based on a 74 year old woman, its wrong. If it goes in the trust, since the trust is in benefit to him, the SPIA will be based on the beneficiary/nephew's age (56).

Any way you go about it though, you can get her a better rate than a MM.

But an attorney needs to be involved in this no matter what!
I would not write the business if the trustee has told you of plans to break the directive of the trust.

 

[sixty6]

I'm still reading through the Elderlaws website, but I wanted to let you know that I was thinking about a SPIA (and I do know that it would be underwritten for a 56 year old, I wasn't planning on doing it for her).

I'm pretty certain that it is a special needs trust from what she's told me so far:
(great, I can't post the link, just search it on google, for illinois special need trust and pick the .gov website)

So far I've determined that SNT's don't necessarily disqualify from Medicaid with present laws, but they can assist with enhancing the beneficiary through vacations and other benefits.

I'm still reading through the legality of it all, but I was thinking of suggesting 75K into an annuity and the remaining 25K in a MMA

Also, irrevocable trusts, specifically SNT's, don't apply to medicaid eligibility from what I understand. And Trust protectors don't always have to be a banking official, it could be anyone from a family member to the attorney (I'll find out once I look at the documents).

Other than a SPIA, what other products would you be looking at?

 

[scagnt83]

And Trust protectors don't always have to be a banking official, it could be anyone from a family member to the attorney (I'll find out once I look at the documents).

Yes, the protector can be anyone for the most part, just not the trustee, grantor, or beni.
They would be the first one that I called and talked to once I received the trust documents if I where you.
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I'm still reading through the Elderlaws website, but I wanted to let you know that I was thinking about a SPIA (and I do know that it would be underwritten for a 56 year old, I wasn't planning on doing it for her).

I'm still reading through the legality of it all, but I was thinking of suggesting 75K into an annuity and the remaining 25K in a MMA

Other than a SPIA, what other products would you be looking at?

It really just depends on what his future needs are deemed to be.
If all he will need is the $500 each month for the rest of his life, then it might work, but what happens if his needs change? The money is locked up. Did you include inflation protection?


I might look at a combo of CDs/muni bonds/preferred stock/FA or EIA.
Let the FA build until he is past 59 1/2.
Meanwhile, take the dividends/interest from the bonds & CDs (or preferred stock) and put that into a MM to draw his income from.

Once he is 60, reevaluate and look at more FA or EIA opportunities. His free withdrawals should be plenty to give him income.

MM funds are meant for parking money over the short term. Not for long term growth. Not only is she getting a terrible interest rate, but there are no guarantees either.

The annuities and CDs would give guarantees, plus income now and later.
The bonds and preferred stock would give current income at an enhanced rate, and still keep investment risk at a low level.

56 is just young for a SPIA in my opinion. Im guessing the SPIA would be a guaranteed lifetime annuity of some sort?
If so, there is a lot of lost opportunity cost putting a 56yo in a product such as that.

 

[sixty6]

Hey, you guys have been great so far, I finally finished reading Illinois law on SNT Irrevocable Trusts and definitely do feel like I understand it while I'm talking to her.

If you guys have any ideas, it's about $135K

I proposed to put $60K into an annuity for him (funded into a MMA), $40K into a CD Ladder (rotating between 2 to 5 year CD's) and $35K into our Mutual Fund. I'm putting together a couple interest rates and a packet for the client, but do you have any other suggestions?

As always, all help is appreciated!

 

[scagnt83]

and $35K into our Mutual Fund.

Out of curiosity.
What exactly is "our" mutual fund??
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I proposed to put $60K into an annuity for him (funded into a MMA)

Is this a GLIA or a true SPIA? If SPIA, for how long?


Either way, speaking as a series 7 rep, I feel that you have it backwards.

GLIA will have tons of lost opportunity cost because of his age.
SPIAs have terrible rates right now.
Plus you are locking up half of the money at a very early age.
Probably not the best recommendation.

You can get a better rate, and more flexibility with a traditional FA. And because of his age, an EIA would probably be suitable for this situation.


Fund the MM with the CDs until he hits 60, this should be his current income source. Then you can roll the CDs into FAs. The other FAs will be out, or close to out of surrender, so he can easily take income from them. Then you ladder the annuities.


This method, as opposed to your suggestion will:
Increase flexibility and accessibility.
Minimize taxes considerably.
And do away with potential lost opportunity cost that you could receive by having unmovable money during higher interest rate periods. And tho LOC of a GLIA with a payout based on a very young age.

Basically in client speak: more options, more flexibility, less taxes, & the potential for better returns on down the road.

Just my 2 cents....

Oh and if your registered, look at some local muni bond funds that have a good history of paying consistent dividends. You could get a higher RR than from CDs, and they should avoid most taxes too.... They might be good to combo with the CDs....
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If you have your 6 o7r 7 consider the Pru Annuity for @ 30%. Highest Dailiy Value Rider. Keep 30% Short Term Bond or CD . 40% S&P Index Fund with a 200 Day moving average trailing stop. '
Safe hunting

Pru has some great VAs out there right now!! They are the only "real" players in the market right now imo....

 

[sixty6]

I forgot to mention I'm a captive producer for SF (even though my agent is seriously screwing me out of commission this year....$50 to sell this annuity)

@Pokerguy, I like the percentages, thanks!
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And the only reason I was thinking of annuities is because she told me that he always asks for $500/month and has never asked for any more

It is a SPIA with a cash settlement option.

 

[scagnt83]

I forgot to mention I'm a captive producer for SF (even though my agent is seriously screwing me out of commission this year....$50 to sell this annuity)

@Pokerguy, I like the percentages, thanks!

WHAT??? $50??? I wouldnt even waste my time with this mess for just that.

For $60k (depending on product/contract) you should make $2500 -$4000!!!!

Hell I will write the biz, split it 50/50 with you, and 1099 you for it!! You would make at last 20x what SF is paying you!!!
Im serious. PM me if you want.
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And the only reason I was thinking of annuities is because she told me that he always asks for $500/month and has never asked for any more

It is a SPIA with a cash settlement option.

SPIA is just too rigid imo. You have to plan for the "ifs" not just the "now". What happens "if" he needs more? Its locked up. As I said before. Not the most appropriate product. Especially at his age. A Deferred annuity would be much more flexible, and accomplish the same thing.

And did you include inflation protection?


Since your SF, Im guessing your product options are limited and training on investment products is minimal. The SPIA would be cramming a round peg into a square hole...

 

[sixty6]

WHAT??? $50??? I wouldnt even waste my time with this mess for just that.

For $60k (depending on product/contract) you should make $2500 -$4000!!!!

Hell I will write the biz, split it 50/50 with you, and 1099 you for it!! You would make at last 20x what SF is paying you!!!
Im serious. PM me if you want.
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SPIA is just too rigid imo. You have to plan for the "ifs" not just the "now". What happens "if" he needs more? Its locked up. As I said before. Not the most appropriate product. Especially at his age. A Deferred annuity would be much more flexible, and accomplish the same thing.

And did you include inflation protection?


Since your SF, Im guessing your product options are limited and training on investment products is minimal. The SPIA would be cramming a round peg into a square hole...

heh trust me, I really wish I could, but I signed a contract with the agent and that would breach it.

You're right though, I am good with the typical personal lines to take care of a home, this is my first real conversation with a client about investment and I guess I was really thinking about the annuity because she flat out said that he only asks for $500/month. I'll look at the deferred annuities, I know that SF either stopped marketing/selling a couple annuities in a few states. I'll check tomorrow and let you know.

PS I can't reply to your PM or even send a PM, apparently I don't have enough posts.