Facts: An older man in his second marriage purchases a SPIA with “his money” in order to receive income. He wants to call all the “shots” so he is the sole owner. He names his new, much-younger wife as the annuitant.
He wants the payment over her life expectancy as he intends for the contract to revert to her upon his death and wants the payment paid over her life. But, just in case she dies first, he names himself the beneficiary to receive the legacy portion of the SPIA at her death.
Complicatons: His kids from his first marriage, who love their mother and don’t care much for his new wife, will inherit the rest of his estate through his will. Also, he doesn’t really want his kids to know about the SPIA contract purchase intended for his new wife. Sounds like a good plan, right?
Several years later, as expected, he dies, predeceasing his new wife.
Let's go inside the case to find out, what happened?
The SPIA contract per the contract language reverts to the joint owner, but there wasn’t one because he was the sole owner and wanted the sole control “to call all the shots.”
The next in line per the SPIA contract language would have been the beneficiary, but because the owner and beneficiary were the same person, this couldn’t happen either. The contract happened to be silent regarding successive ownership control after this time, so the property reverted to his estate and his adult kids got it via the probate process!
The kids became the new owners of the contract intended for his new wife. She was immediately disinherited. Not cool.
Final thoughts: I asked the attorney on this case, why the parties, knowing the vast differences in age, purchased such a contract? The attorney said: "it was the best priced 30CL SPIA at the time."
And frankly, this is the kind of results consumers, who don’t work with knowledgeable annuity agents about the contracts they represent, can expect. It’s tempting for consumers and some agents to just look at these products from a price-only perspective without really knowing how the contract works, treating them as some type of commodity.
In the end, you can really pay for such a myopic perspective. And, if you think it’s expensive dealing with a professional annuity agent, wait until you see the cost of dealing with an amateur.