retirement

6 best times when annuities make a good investment fit

When you're creating a trust for family
When you're creating a trust for family | dotshock/Shutterstock.com

When you're creating a trust for family

The only time that Ric Edelman, chairman and CEO of Edelman Financial Services, LLC, advises using annuities is for his namesake Retirement Income for Everyone (or RIC-E) Trust.

The concept is simple.

A parent or grandparent initiates the irrevocable trust with $5,000 or more, says Edelman, also the author of "The Truth About Money." That money is invested in variable annuities, which go into a trust for the child until he or she hits retirement. "By not having to pay taxes for 60 years or more, you can create a higher account value," he says.

The investor (the person who contributes the money) names another person as the trustee, he says. And both the trustee and the account beneficiary receive statements quarterly, so they can keep track of the trust balance.

But this option comes with its own costs. There is a $200 fee to set up the account, plus ongoing annual fees that average about 2.3 percent per year.

While grandparents set them up for grandchildren, parents often establish them for adult children who aren't high earners or who just aren't good with money to make sure they'll have some money set aside for retirement, Edelman says.

And the trust won't be counted as an asset if the child applies for college financial aid, says Edelman. Likewise, it wouldn't be included in marital assets if the child divorces.

advertisement

Show Bankrate's community sharing policy

Connect with us