Annuity Contract Ownership Annuitant Driven Contract

Transcription

1 Annuity Contract Ownership Annuitant Driven Contract Brought to you by the Nationwide Advanced Sales Team FOR BROKER/DEALER USE ONLY NOT FOR USE WITH THE PUBLIC

2 Some things you need to know CIRCULAR 230 DISCLOSURE: To comply with US Treasury Department regulations, we inform you that unless otherwise expressly indicated, any tax advice as contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, by any person other than nationwide and its affiliates, for the purpose of (i) avoiding penalties that may be imposed under the Internal Revenue Code or any other applicable tax law, or (ii) promoting, marketing or recommending to another party any transaction, arrangement or other matter. Federal tax laws are complex and subject to change. Neither the company nor its representatives give legal or tax advice. Please talk with your attorney or tax advisor for answers to your specific questions. When evaluating the purchase of a variable annuity, your clients should be aware that variable annuities are long-term investment vehicles designed for retirement purposes and will fluctuate in value; annuities have limitations; and investing involves market risk, including possible loss of principal. 2

3 Some things you need to know All guarantees and protections are subject to the claims-paying ability of Nationwide Life Insurance Company, and do not apply to variable underlying investment options. Before investing, please encourage your clients to carefully consider the fund s investment objectives, risks, charges and expenses, which can be found within the product prospectus and underlying fund prospectuses. Both the product prospectus and underlying fund prospectuses can be obtained by writing to Nationwide Life Insurance Company, P.O. Box , Columbus, OH

4 Some things you need to know Life insurance and annuities are issued by Nationwide Life Insurance Company or Nationwide Life and Annuity Company, Columbus, Ohio, member of Nationwide Financial. The general distributor for variable insurance products is Nationwide Investment Services Corporation, member FINRA. 2011, Nationwide Financial Services, Inc. All rights reserved. Not a deposit Not FDIC or NCUSIF insured Not guaranteed by the institution Not insured by any federal government agency May lose value 4

5 Agenda Part I What is an annuity contract Parties to an annuity contract and their roles Two phases and types of annuity contracts Death benefits: standard and enhanced Required death distributions Part 2 Common annuity contract structures Questions 5

6 The Story of Mom, Glen and Sally Mom had a good son named Glen and a bad daughter named Sally. Unfortunately, most of her life, mom did not know Sally was bad. She trusted Sally with her financial affairs, including naming Sally as executrix of her estate. Sally lived on the West Coast and did not attend to mom when she became ill. As always, Glen took care of mom. 6

7 Annuity purchased for $300,000 Owner - Mom Annuitant - Son Beneficiary - Son No joint owner or contingent owner was named Contract is annuitant driven 7

8 Results at Mom s Death Mom died Annuity did not pay a death benefit Under the contract, proceeds pay to the joint owner if named or contingent owner if named No joint owner or contingent owner was named As a default the contract distribution was payable to mom s estate 8

9 Summary of Outcome Sally, the executrix of the estate, received the distribution. Sally and Glen were equal beneficiaries of the estate. Mom s intent was not accomplished. 9

10 Part 1 Annuity (commercial annuity): A contract between an individual and an insurance company in which the company agrees to make a series of periodic payments to an individual in exchange for a premium or series of premiums. 10

11 Types of Annuities Deferred Variable Deferred Fixed Immediate Variable Immediate Fixed 11

12 Two Phases of a Deferred Annuity Asset accumulation phase - Premiums paid into the contract have the potential to grow on a tax-deferred basis. Payout phase - Income payments are usually disbursed on a regular basis from the contract. 12

13 Two Deferred Annuity Contract Types Owner-driven contract - Owner s death initiates death benefit payment to beneficiary Annuitant-driven contract - Annuitant s death initiates death benefit payment to beneficiary 13

14 Annuitant Driven Characteristics Allows the annuitant to receive periodic payments for the rest of his or her life Offers a death benefit when the annuitant dies Only contract value, subject to CDSC, is distributed when the non-annuitant dies Tax-deferral - the investor pays no taxes on the income and potential investment gains from the annuity until the funds are withdrawn Some annuitant driven contracts may offer death benefit protection for non-owning spouses 14

15 Parties to an Annuity Contract and their Roles Insurance Company Owner Joint Owner Contingent Owner Annuitant Contingent Annuitant Co-Annuitant Beneficiary Primary Beneficiary Contingent Beneficiary Successor Beneficiary 15

16 Owner One who possesses all rights under the contract including the right to: Name and change the annuitant Choose and change the annuity starting date Select (and change before the annuity starting date) a payout election Name and change the beneficiary Request and receive proceeds of a partial or full surrender Allocate funds among different sub-accounts Control status of a systematic withdrawal Change contract ownership to other parties 16

17 Joint Owner Joint owners each possess an undivided interest in the entire contract Joint owners may only be named on non-qualified contracts 17

18 Contingent Owner A contingent owner is entitled to certain benefits under the contract if a contract owner who is not the annuitant dies before the annuity starting date, and there is no surviving joint owner A contingent owner may only be named on non-qualified contracts 18

19 Annuitant The measuring life for providing income benefits under the annuity contract Age determines benefits payable under an annuity Attainment of a given age determines annuity starting date Generally, the annuitant is the person who receives payments during the payout phase 19

20 Contingent Annuitant The individual who becomes the annuitant if the owner and annuitant are two different people and the annuitant dies before the annuity starting date In this situation, the contingent annuitant becomes the annuitant and no death benefit is paid 20

21 Co-Annuitant The individual (generally must be a spouse) whose death, if prior to the annuitization date, pays a death benefit to the primary beneficiary. May only be available for an additional expense or associated with an enhanced death benefit option which includes an additional expense. Usually only available on annuitant driven contracts. 21

22 Primary Beneficiary The individual or entity that receives the death benefit if the annuitant dies before the annuitization date and there is no joint owner 22

23 Contingent Beneficiary The individual or entity that receives the death benefit if the annuitant dies before the annuitization date and there is no joint owner or primary beneficiary 23

24 Successor Beneficiary The successor beneficiary will receive any remaining payments in the event the designated beneficiary dies prior to complete payout 24

25 Primary Beneficiary and Contingent Beneficiary Rights and Roles A contract owner may name more than one beneficiary. Each beneficiary will share the death benefit equally, unless specified otherwise. Beneficiaries are usually paid by class, meaning that no contingent beneficiaries will collect until all of the primary beneficiaries have died 25

26 Death Benefit: Standard vs. Enhanced Standard Death Benefits: (before annuity start date) Total premiums paid to the contract less any withdrawals; or The current value of the annuity contract 26

27 Death Benefit: Standard vs. Enhanced Enhanced Death Benefit Options Accumulated contract values are locked-in on set contract anniversaries such as any contract anniversary or the most recent five year contract anniversary prior to the annuitant s 86th birthday Rate of return is guaranteed on each purchase payment accumulated at a specific interest rate to protect against market downturns Please remember that this is subject to state availability and terms and conditions may vary by product All guarantees are based on the claims-paying ability of the issuing insurance company 27

28 Required Distributions Death of Owner Occurs Before the Annuity Start Date The entire contract value must be: 1. Distributed within the five (5) years of the date of the owner s death; 2. Distributed over the beneficiary s life expectancy distributions must begin no later than one year following the owner s death. Term period for these two options must be based on the beneficiary s life expectancy or a period not extending beyond his or her life expectancy; or 3. Annuitized same distribution terms as #2 apply 28

29 Spousal Exception If the surviving spouse becomes the contract owner upon the death of the owner, he/she may elect to continue as the contract owner. No distributions are required. 29

30 Required Distribution Death of Owner Occurs after the Annuity Start Date Any remaining periodic income payments must be made at least as rapidly as prior to the death of the owner. 30

31 Part 2 Common Annuity Contract Structures Upon the death of the owner does his/her surviving spouse become the owner? Under federal law, the death of the owner generally requires distributions to commence or continue. 31

32 Common Annuity Contract Structures Father wants to maintain control of the contract and have the death benefit payable to his child upon the Father s death. 32

33 Example John is the owner and annuitant His son Sam is the beneficiary Upon John s death, Sam receives the death benefit 33

34 Common Annuity Contract Structures Wife wants to maintain control of the contract and have the death benefit payable to a child (or other third party) upon wife s death 34

35 Example Mary is the owner and annuitant Her daughter Jill is the beneficiary Upon Mary s death, her daughter Jill receives the death benefit 35

36 Common Annuity Contract Structures Husband and wife want a child (or other third party) to receive the death benefit only after both have died 36

37 Example John would be the owner and annuitant. Mary (his wife) would be the contingent owner and contingent annuitant. Jane would be the primary beneficiary. 37

38 Common Annuity Contract Structures Husband and wife want to maintain joint control of the contract until both their deaths with the death benefit payable to a child (or other third party) 38

39 Example Joe and Sue would be the joint owners. Joe would be the annuitant. Sue would be the primary beneficiary, and Jane would be the contingent beneficiary. 39

40 Common Annuity Contract Structures Husband and wife want to name a revocable trust as owner and have the death benefit payable to the trust upon husband s death. 40

41 Example The trust would be the owner, David would be the annuitant, and the trust would be named as beneficiary. 41

42 Common Annuity Contract Structures Husband and wife want to jointly own the contract and have a death benefit paid upon the death of either spouse. Additionally, husband and wife want the surviving spouse to continue the contract upon the death of either spouse. 42

43 Example Paul would be the owner and annuitant. Jodi would be the joint owner and co-annuitant. Both Paul and Jodi would be the primary beneficiaries. 43

44 Revisiting Mom, Glen and Sally What could the mother have done to make this situation come out the way she had intended? 44

45 Questions? Independent Dealer: Financial Institutions: Wirehouse/Regionals: Nationwide Agents: Nationwide Financial Network: