Assignment of Annuity - Not A Tax Question

[JohnH]

Since we've been having lively discussions of anuuities on another thread or two, I have a question for those of you who sell financial products. This is for me personally and so I'll put up the discalimer for you in advance. Nothing you say in response to this question should be relied upon in any manner, for any reason, for any purpose, at any time, by anybody. Now that we have that out of the way:

I have a piece of property for sale. The buyer intends to get a loan from the bank which he plans to pay off when an annuity matures next year. He wants to wait until the annuity matures because there will be a penalty for cashing it in early.

But he may not be able to get the loan. If that happens, I'm thinking of suggesting that he assign the annuity to me as payment for the property, after doing the due dligience I need to do. I'm also wondering if the penalty is very great since he is s close to the maturity date, and if it isn't I may suggest splitting the surrender fee in order to get clean deal done. But if all else fails, then the assignment might be an alternative.

Anyone have any words of wisdom or caution regarding this idea of taking assignment of the annuity?

[JoshinNC]

John

The surrender schedule is in the annuity contract. If the contract is lost he can call the issuer to find out the specific surrender charge applicable on the current date.

Surrender schedules are generally declining. For example, a 7 year schedule will usually go 7%, 6%, 6%, 4%, 3%, 2%, 1%, 0% thereafter. So, if he is within one year of the schedule ending it may only be 1 or 2%.

[DaveO]

Isn't this what companies like JG Wentworth do? Al long as you CYA can't see a problem.

[JohnH]

Thanks Josh. I thought the surrender charge should be fairly low, and I'd probably just discount the price of the land to make him whole (in order to get the deal done now). But if it had some unusual back-loaded charge then I was thinking of the assignment as a possible alternative. I appreciate the encouraging reply.

[Roland Slugg]

I don't believe an annuity can be assigned any more than an IRA can. But he can always ask the issuer or his agent.

Yes, the surrender charge will be stated in the annuity contract. If it's close to the date when it will decrease, say, from 2% to 1%, it might make sense to wait that additional time. Some (most? all?) annuities allow a "free" redemption each year ... 10% is a common amount ... so the redemption fee may be slightly less than it would first seem. Unfortunately, the "free" distribution amounts are not cumulative, but apply on a year-by-year basis.

[Burke]

I am not aware of any restrictions on an assignment of a non-qualified annuity, but when we did collateral assignments of life insurance policies, it was a specific assignment of "So-and-so company or name-of-person, as its interest may appear." This meant that when cash values or death benefits were paid and the assignment was still in effect and had not been previously released, whoever the assignee was had to produce the loan and/or legal document specifying the amount which was owed (which may have included interest to date) and that was the amount the assignee got. The balance, if any, went to the named beneficiary(ies), or policyowner if it was a surrender. I don't see why the same could not be done for an annuity, which would kick in upon surrender or maturity, but you could ck with the specific policy provider to be sure it was allowed. The policy might have a provision concerning this situation. All life insurance policies do. The tax consequences would not change. The annuitant owner/assignor would still be liable for all taxes on the earnings in the gross distribution, and the assignee would receive (tax-free) the amt of the debt he held.