Do you have a child or children? Do you want to leave them an inheritance?
Here is the problem and fortunately a solution I found, a joint parent and child annuity, which, while perhaps not a perfect answer, at least addressed the basic needs of both parties.
Family problems between parent and child
A client, while wanting her daughter to inherit her estate, was worried about her spendthrift habits and her husbands’ lack of settled employment. As a single parent with an only child, she was torn about how to provide some benefit. Then after she came to me for advice, I investigated the possibility of buying a joint parent and child annuity.
She herself needed some guaranteed income, having lost money in the stock market and was getting very little GIC income after paying taxes.
Parent and Child Annuity
She needed to see if she could buy an annuity with her child, a daughter, as co life annuitant. We explained the circumstances to various life insurance companies to seek possible answers. The result is that she will now receive the life annuity income as long as she lives and at her death, the payments will continue to her daughter for her lifetime also.
Outcome of parent and child annuity
What is remarkable in this case is that there is an age difference of 38 years. The life insurance company is guaranteeing the monthly life annuity payments for potentially 50 more years! The parent would obviously receive more income if he she had bought a single life annuity on her own life but then her daughter would have received a far lesser estate. This way she reasoned, she would have enough income and that this parent and child annuity solution, would solve the family problem of uncertainty and provide some spending controls.
Conclusion
Not a perfect solution perhaps, but it is impossible to foresee what will happen with the daughters’ life. The daughter cannot cash in the life annuity payments, though perhaps she could be persuaded to misuse the monthly payments. But any parent has to live with these types of situations, which are not of their own making.
Overall Comment
Life annuities, like life insurance , have for too long been thought of in very fixed terms. In fact they are tools to arrange the pluses and minuses in your life to help you solve problems as with this parent and child annuity approach.
