Protect your heirs by selecting the right structure for your Vanguard Variable Annuity

Transcription

1 Protect your heirs by selecting the right structure for your Vanguard Variable Annuity 5074 (04/11)

2 Make the right choices when structuring your annuity When you buy a Vanguard Variable Annuity, you have to name a contract owner (usually yourself), an annuitant (either yourself or another person, such as your spouse), and beneficiaries (perhaps your spouse, children, or grandchildren). These selections form the structure of your annuity. Your choices may not seem important at first. But if you die, and haven t yet converted the annuity to an income stream, the structure will determine who receives the assets. This brochure can help you establish the right structure for your Vanguard Variable Annuity, issued by Monumental Life Insurance Company and, in New York State only, by Transamerica Financial Life Insurance Company. If your annuity is structured properly, your assets will go to the person you intended and not to someone else or to your estate. A good structure can prevent costly and time-consuming problems for your heirs. Who s who in an annuity contract It s easy to create the right structure if you clearly understand the four roles in the contract and their functions. Contract owner The owner purchases the annuity and chooses the annuitant and the beneficiaries. There can be joint owners, and ownership of the contract can change. Annuitant The annuitant is the person whose life expectancy is used to calculate annuity payments if the contract is converted to an income stream. Once designated, an annuitant generally cannot be changed, although a joint annuitant may be added. Contract owner s beneficiary The owner s beneficiary receives the annuity s accumulated value if the owner dies before converting the contract to an income stream. Annuitant s beneficiary The annuitant s beneficiary (primary or contingent) receives the death benefit if the annuitant dies before the contract is converted to an income stream. (See Who gets the death benefit of a Vanguard Variable Annuity. )

3 Who gets the death benefit of a Vanguard Variable Annuity The options available to a beneficiary, and the amount a beneficiary receives, differ depending on whether the person who died was the contract owner or the annuitant. If the contract owner dies, the contract owner s beneficiary receives the contract s accumulated value* the value on the day Vanguard receives proof of death and all other required forms, fully completed. If the annuitant dies, the annuitant s beneficiary receives the contract s accumulated value or a guaranteed minimum death benefit value (if that value is greater than the accumulated value). What happens when an owner or annuitant dies If the death occurs before the annuity is converted to an income stream and no joint owner or joint annuitant is living, the structure determines who receives the assets and how soon the assets must be withdrawn.** Following the death of the owner If the owner dies, the owner s beneficiary can receive the accumulated value as a lump sum (within five years after the owner s death) or as an income stream (starting within a year after the owner s death). If the spouse is the owner s beneficiary or a joint owner, the spouse can maintain the contract as if he or she were the original owner. If the joint owner is not the owner s spouse, the joint owner must receive the accumulated value within five years after the owner s death. If the owner was also the annuitant, the beneficiary may receive the death benefit in a lump sum or as an income stream, or withdraw the account value within five years after the owner s death. Following the death of the annuitant If the annuitant dies, the annuitant s beneficiary receives the death benefit in effect at the time of death. If the annuitant s beneficiary has died and no new beneficiary was named, the death benefit reverts to the contract owner or to the annuitant s estate. If there is a joint annuitant, the death benefit is paid after the joint annuitant dies. If an annuitant s beneficiary was never named, the death benefit goes to the annuitant s estate. * The accumulated value equals the sum of all premiums, minus withdrawals, fees, or premium taxes, plus or minus any change in value of the underlying investments. ** If the contract owner is a trust or corporation, the death of the annuitant is treated as the death of the contract owner for federal income tax purposes. As defined by the Defense of Marriage Act (DOMA) of The assets go to the annuitant s estate if the contract was opened on or after September 13, If the contract was opened earlier, the assets go to the contract owner.

4 How to make sure the assets go to the right person Once you understand the roles and relationships within an annuity s structure, you can create a structure for your Vanguard Variable Annuity that suits your needs. For many people, that will mean ensuring that, if a husband or wife dies, the assets will go to the surviving wife or husband. The first four structures described below result in the annuity assets going to the surviving spouse. The last structure may result in unintended consequences. (The assets don t go to the surviving spouse, but to the children or to the owner s estate.) Annuity structures that ensure the surviving spouse receives the assets Owner Annuitant Owner s beneficiary Annuitant s beneficiary Husband Wife Wife Husband If the husband dies, the wife receives the accumulated value. If the wife dies, the husband can claim the death benefit. Husband Husband None Wife If the husband dies, the wife has a choice. She can continue the contract or, as the annuitant s beneficiary, she can claim the death benefit. Husband and Wife Wife None Husband If the husband dies, the wife will continue as owner and annuitant. If the wife dies, the husband can either continue the contract or claim the death benefit. Husband and Wife Husband and Wife None None If either the husband or wife dies, the surviving spouse continues as owner and annuitant. Annuity structure that may cause difficulties Owner Annuitant Owner s beneficiary Annuitant s beneficiary Husband Wife None Children If the husband dies, the accumulated value goes to his estate. If the wife dies, the children can claim the death benefit and the husband will receive nothing.

5 How annuity structure affects taxes Variable annuities, which are long-term savings vehicles designed for retirement purposes, are generally purchased with after-tax dollars and grow tax-deferred until assets are withdrawn. Earnings are withdrawn first and are subject to tax. When an amount equal to the earnings has been withdrawn, the remaining principal can be withdrawn tax-free. Withdrawals by the annuity owner before age 59½ may be subject to a 10% federal penalty tax.* An annuity s structure can have income tax implications. For instance, it can determine the timetable for taking taxable distributions from the contract. Any change in the ownership of a deferred annuity can be a taxable event. If a surviving spouse receives the annuity assets, he or she doesn t have to take distributions. He or she can let the contract continue to grow tax-deferred. Like the original owner, the spouse can contribute to the contract, take taxable withdrawals, or convert the annuity to an income stream. If the beneficiary is not a spouse a child, for example different rules apply. An owner s beneficiary can take the accumulated value as a lump sum, withdraw it over five years, or convert it to an income stream. An annuitant s beneficiary must take the death benefit as a lump sum or convert the assets to an income stream. *Beneficiaries who are under age 59½ are not typically subject to the 10% early withdrawal penalty. Q U E S T I O N S? If you would like help structuring your annuity, call us at on business days from 8 a.m. to 8 p.m., Eastern time. A Vanguard Variable Annuity representative will assist you. If you intend to transfer an existing annuity to a Vanguard Variable Annuity through a tax-free exchange called a 1035 exchange we may be able to help you adjust the structure. Before initiating a transfer, you should consider such things as annual maintenance fees, surrender charges, and death benefits of your current annuity contract. This material was not intended or written to be used, and cannot be used, to avoid penalties imposed under the Internal Revenue Code. This material was written to support the promotion or marketing of the products, services, and/or concepts addressed in this material. Anyone to whom this material is promoted, marketed, or recommended should consult with and rely solely on independent advisors regarding his or her particular situation and the concepts presented here.

6 Vanguard Annuity and Insurance Services P.O. Box 1105 Valley Forge, PA Connect with Vanguard > vanguard.com > The Vanguard Variable Annuity is a flexible-premium variable annuity issued by Monumental Life Insurance Company, Cedar Rapids, Iowa (NAIC No ), Form No. VVAP U 1101 (in Florida, Form No. VVAP U 1101 (FL), and in Oregon, Form No. VVAP U 1101 (OR) (R), without agent representation. This insurance policy is not available in all states and may vary by state. In New York State only, the Vanguard Variable Annuity is issued by Transamerica Financial Life Insurance Company, Harrison, New York (NAIC No ), Form No. VVA NY 0208, without agent representation. The Vanguard Group administers the Vanguard Variable Annuity for the issuers. Its variable annuity and investment costs rank among the lowest in the industry, according to Morningstar, Inc., December The Vanguard Group, Monumental Life Insurance Company, and Transamerica Financial Life Insurance Company do not provide tax advice. Investors are encouraged to consult a tax advisor for information on how annuity taxation applies to their individual situations. For more information about the Vanguard Variable Annuity, visit vanguard.com, or call , to obtain fund and variable annuity contract prospectuses. Investment objectives, risks, charges, expenses, and other important information about the product are contained in the prospectuses; read and consider them carefully before investing The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corporation, Distributor. VSYAB