My parents set up an Irrevocable Trust many years ago. My father is deceased and my mother is now 96 years, has Alzheimer’s and lives in nursing home. I am the Trustee of the account. Because my mother is over the age of 95, I’ve been informed by the investment company that the Trust’s guaranteed interest account has been switched to a Life Annuity with a 4 year period certain. This seems to have come out of nowhere and without my input or consent. Supposedly it’s in the contract.
The switch does not benefit anyone of the beneficiaries (my family). Has anyone else experienced this? If so, were you able to stop it? What were the tax ramifications? Thanks!
1. To clarify, are you the Trustee of the Trust as well as any other assets conveyed to it? I'm not sure what "Trustee of the account" means. The investment account? And is the investment company managing the guaranteed interest account, now switched to an annuity? These questions are significant to your question.
2. Have you read the Trust? Apparently it contains a provision addressing the guaranteed interest account and a Life Annuity? If you haven't read the full Trust, that's the first step. Typically the aspects specific to that Trust are incorporated in the several first pages, with the latter being devoted to standard and statutory issues.
3. What DOES the Trust provide for investment when your mother reaches 95?
4. When you write that the Life Annuity doesn't benefit the beneficiaries, are you referring to your mother, and now, or to the eventual beneficiaries after your mother passes?
("The switch does not benefit anyone of the beneficiaries (my family)."
I ask b/c unless the eventual beneficiaries are addressed in specific provisions as being recipients of Trust's assets NOW, they would be subsequent beneficiaries after your mother passes, when funds wouldn't need to be allocated to her care.
So the question arises whether or not the change is for your mother's benefit, or for yours and the other beneficiaries? If the latter, it's similar to bequests in a Will, designed to benefit individuals after the death of the those who created the documents. Unless otherwise specifically indicated, the eventual heirs/beneficiaries don't have a say in management of assets while the principal (your mother) is still alive.
5. What authority does the Trust provide you as Trustee to address this change, since you indicate that it "seems to have come out of nowhere and without my input or consent." Are you in charge of management of any other assets? What authority do you have as Trustee under the Trust to address and/or change the chosen investments?
6. "Supposedly it’s in the contract." By this, do you mean the Trust, or the annuity agreement? It makes a big difference. Have you read this "contract", and exactly what contract is being referenced?
7. Tax ramifications: I wouldn't even touch this with a 50' pole. Trust taxation is very, very complex. I've only dealt with one Annuity about 25 years ago, and remember nothing, but taxation isn't for someone w/o experience in this specifically unique area.
8. Suggestions: read over my questions and consider the ramifications of the possible scenarios, to quickly eliminate the uncertainties. If the investment company took this action on its own, w/o authority in the Trust, then you do have a grievance. But the first step is to clarify their roles vis-à-vis yours.
I found this:
https://www.annuity.org/annuities/payout/period-certain/
I finally sat down with my financial advisor who explained the annuity to me and how it works. Now that my annuity has reached its maturity date, when I want to make a withdrawal, my financial advisor and I do a 3 way call with the annuity company. Although my tax accountant is the one to ask about taxes. If I withdraw profits, I pay taxes on the amount at my regular tax rate until I reach the original principal which is not taxable.
Normally, before something is set to change with the annuity, the company sends out a notice advising me of the upcoming change and allowing me to reallocate how I'd like the interest to be spread out (over which funds and what percentages per fund). If I don't respond, the company takes action as they see fit. The fine print is massive in these contracts, which is the part of why they're complicated imo.
Do you have a financial advisor who can help you thru these questions? If not, call the company and ask directly: why did the terms of the contract change without notice, and, what action can you take to reinstate the former terms? These annuity companies do have a customer service dept and you can ask to speak to a supervisor if necessary.
Good luck!