savings

Annuity is good way to disburse money

Don Taylorq_v2.gifDear Dr. Don,
Let's say you get/win a lot of cash. Maybe it was a winning lottery ticket -- say, over $50 million. Would you recommend using annuities instead of giving people cash? That way, they'd have money, but not a great amount upfront. Can you purchase annuities like that?
-- Solvent Sal

a_v2.gifDear Sal,
Here's hoping you're not talking hypothetically and you've got some money to put to work. You're right in wanting to make the money last, even as you're gifting some of it to others. One concern I have in your hypothetical is that many lotteries have annuity payouts. Taking the lump sum only to turn around and buy annuities isn't likely to make sense.

That said, buying an immediate annuity would do the trick. With that purchase you're paying a lump sum today, and it can provide a lifetime income stream for the annuitant. There's a host of different choices you can make, like having the annuity pay over the joint lifetimes of a couple, annuities that pay out over a set time period if the annuitant dies early on, etc.

While an immediate annuity can do the trick, there may be better ways for preserving and allocating the wealth over time. Structuring a trust or series of trusts could accomplish your wealth transfer goals while keeping a measure of flexibility in how, and to whom, the money is available.

What you really need to take away from this reply is that you need professional legal, tax, and investment advice in deciding how to manage a fortune. Don't do it on the cheap by writing advice columnists.

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Read more Dr. Don columns for additional personal finance advice. To ask a question of Dr. Don, go to the "Ask the Experts" page, and select one of these topics: "Financing a home," "Saving & Investing" or "Money."

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