Just a few years ago, life annuity was often presented stereotypically as a scheme that gambled on the short life expectancy of the sellers. Nowadays, however, life annuity is recognised as a viable solution when it comes to investing money or enhancing an asset position. Indeed, life annuity sales have increased by 5% per year over the last few years.
BARNES Life Annuity provides its clients with tailored support that identifies their expectations and needs in order to advise them in their best interests.
Do you own one or more properties, in a major city, on the oceanfront or in the mountains and are looking to consolidate your assets? Selling for an annuity could be an option worth considering. Once the contract is signed, you receive a lump sum, or initial settlement, capital that is yours to do as you please with. This lump sum can provide additional lifetime income, or be used as an investment or put into stocks. You can also bequeath this sum during your lifetime in the form of a gift.
If it is your primary residence that you are selling, this solution allows you to retain your home and your habits. In which case, the lump sum is tax-free. If it is not your primary residence, the initial settlement can be used to pay any capital gains tax. This lump sum can be supplemented by instalments, or the annuity. This annuity is reviewed every year to protect your purchasing power and can offset a fall in income. The annuity provides for a benefit of 100% to the surviving spouse, and is exempt from inheritance tax. However, if you are subject to tax on personal real estate assets, the capital value of the annuity payment is used as the basis for this calculation, and not the value of the bare title. This value thus decreases year on year.
There are two options when it comes to an annuity purchase: An “unoccupied” life annuity - the property you are buying is vacant - or an “occupied” life annuity - the vendor still lives in the property. Whether unoccupied or occupied, the principle remains the same. Once the contract is signed, the buyer pays you an outright sum, the initial settlement, as well as a monthly sum, the annuity, until the death of the life tenant.
If you buy an unoccupied life annuity, you can do what you wish with the property, whether you use it as your primary residence or put it up for rent. The second option allows you to pay the annuity instalments using the rent collected.
Thanks to these staggered payments, buying an unoccupied or occupied life annuity allows you to invest unused amounts in line with your objectives.
Alternative profitable investments also exist, such as annuity funds. You do not buy an occupied life annuity directly, but via an investment fund that owns several properties. An annuity investment fund allows buyers to protect themselves against the risks of an exceptional vendor lifespan. This solution is also attractive to vendors as the annuity fund ensures more stable solvency by avoiding unpaid instalments.
© CHALLENGES - published on Barnes International Realty on 11/02/2020
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