BRYN MAWR, Pa., Jan. 8, 2007 (PRIME NEWSWIRE) -- With tuition bills consistently rising faster than inflation, many parents are looking for additional sources of cash to finance their kids' education -- particularly ones that don't involve more loans or borrowing against home equity lines. What about annuities?
Traditionally thought of as a retirement vehicle, annuities are increasingly being used as a personal finance tool by grandparents to fund important family goals like college tuition, according to J.G. Wentworth, a specialty finance company and leader in the secondary market for annuities. In fact, according to a recent MetLife Mature Market Institute survey, of those grandparents with grandchildren 21 years or younger, a little over half (55%) contribute in some way to their grandchildren's education, with 21% setting up a fund for college tuition (see Note).
"Based on our ongoing discussions with customers and potential customers, we have noticed that more investors who hold annuities or those who anticipate inheriting them from their own parents have inquired about leveraging their asset to fund college tuition," said Michael Vaughan, Managing Director of the J.G. Wentworth Annuity Purchase Program. "For parents able to utilize part of the income stream of an annuity to raise a lump sum of cash, it is a valuable alternative to taking out another loan or borrowing against home equity lines. For grandparents, in addition to making an important investment in the future of their grandchildren, selling all or part of an annuity can actually make their estate planning easier."
Vaughan noted that annuities, which can have investment values of up to $2 million and more, can greatly increase the complexity of estate planning issues, specifically because annuities are subject to the estate transfer tax, which could cause a loss of almost 50% of the annuity value to taxes. At the same time, surviving children who inherit their annuities can be stuck with a hefty tax bill at the end of the year as the beneficiary is responsible to pay taxes on the gains in the annuity at their ordinary income tax rate, not at the lower capital gains rate, and not with the benefit of a step-up in cost basis.
"In speaking with thousands of consumers, financial advisors, agents and brokers, we have seen that investors want to have control of their investments," said Vaughan. "Annuities do not always offer the liquidity that investors are looking for and that is why the secondary market for annuities was developed to meet those needs."
About J.G. Wentworth
For more than 15 years, J.G. Wentworth has been purchasing annuities as well as other deferred payment streams. During this time, the company has purchased over $2 billion of future payment obligations. The company's annuity-backed notes are rated AAA by Standard & Poor's and Aaa by Moody's and sold to institutional investors. J.G. Wentworth is based in Bryn Mawr, PA. For more information about J.G. Wentworth, go to www.jgwfunding.com.
Note: A full report on the MetLife Grandparents Poll, can be found at: www.maturemarketinstitute.com under "What's New." June 15, 2006