Some tax-deferred annuities offer an irrevocable beneficiary designation option. Here’s how this might work:
You can change the beneficiary designation during your lifetime.
After your death, though, the beneficiary designation is locked in, along with the payout method.
Such a feature may be appealing if you’re concerned about your heirs. You can name your daughter as beneficiary, for example, specifying a single-life payout. No matter what happens to your daughter–divorce, lawsuits, business failures–she’ll have that lifetime income. What’s more, some income from an annuity will be a tax-free return of principal.
If you wish, you can specify a “20-year term certain” payout for your daughter. Then, if she dies, say, 12 years after you, her heirs (your grandchildren, perhaps) will receive payments for another eight years. You can’t provide such post-mortem protection with other types of bequests. An inherited IRA, for example, can be cashed in all at once and lost to a con artist. To truly protect your heirs, you’d need to go to the time and expense of setting up a trust.
An annuity, on the other hand, can be a simple, inexpensive way to provide a legacy that always will be there for your heirs.
