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Modern Estate Planning Blog

Elder Law & Special Needs Planning

The Downside to Annuities from a Fair Oaks Trust Lawyer’s Perspective

October 7, 2013

When it comes to annuities, trust lawyers in Fair Oaks, CA do at times recommend these financial products for their clients…and they may be a great choice for you. This particular article is just to offer some additional food for thought on making decisions regarding whether or not annuities are wise additions to your overall estate plan.

Many people love the idea of an annuity because it can provide a steady income during the retirement years. Annuities can be especially helpful for those who are approaching retirement age and don’t already have a good 401(k) or IRA in place, for example. On the other hand, there are some real costs associated with an annuity, and you’ll want to factor them in when making your decisions regarding this type of investment.

Annual Fees

The amount you pay in annual fees will depend on several factors, including the company you use and the type of annuity you purchase. A variable annuity, for example, will be subject to higher annual fees than a fixed annuity.  It’s not unusual for annual fees to add up to 3% a year or even more. This definitely needs to be taken into consideration when planning for what your eventual payout will be. Losing a chunk of your money every year will affect the overall value of your annuity.  Be sure to have your trust lawyer in Fair Oaks, CA compare annual rates for different annuities that you might be considering.

Surrender Charges

Having your annuity money sitting there can provide quite a temptation when you find yourself in need of cash. You may still have access to the cash, but not for free. If you want to pull money out early, you will likely face a pretty steep surrender charge, which is usually higher earlier on in your account’s history. For example, you could be charged as much as 20% for taking money out in the first year, with the percentage dropping each year after that. Surrender periods can range from 5 to 15 years.


Don’t forget that annuities are insurance products. Even when working with a reputable Fair Oaks Trust lawyer, you will need to purchase your annuity through some kind of insurance sales person. This sales person or broker will be entitled to a commission for selling you the product. This commission will vary based on many different factors, but it’s not unreasonable to expect to pay 10%.

Long-term Care

Annuities can be used for Veterans benefit or Medi-Cal (Medicaid) planning purposes. However, having the wrong kind of annuity can be an expensive nightmare in these same circumstances. If you need to “un-do” the annuities to get into the right kind of annuity you need to consider not only the surrender charges, but also the income tax consequences. If you are exploring planning to access long-term care benefits, be sure to have your trust and elder care lawyer in Fair Oaks, CA review your current annuities and any annuities you are looking to purchase.

Again, an annuity might be a great option for your situation. These are just some considerations to make. For a fuller understanding, meet with your trust lawyer in Fair Oaks to review your needs and options.

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Very professional, comprehensive service and extremely valuable. Heather and her team are very knowledgeable and we feel they have our best interests at heart. They make uncomfortable decision conversations possible and manageable. Working with Heather we were able to focus our attention on important issues that we questioned or purposely avoided for too long. Now that these questions are answered and our family is covered, it's a wonderful feeling.

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