Lock In Market Gains For Your Beneficiaries

Lock In Market Gains For Your Beneficiaries

| January 20, 2021

The stock market is at all-time highs once again.  Check out this chart of the S&P 500 Index over the past 8+ years.

Do you have investments in stocks and/or stock funds that you expect to leave to beneficiaries?

If so, it may make sense to investigate the pros and cons of using an advisory variable annuity to lock in today's current value as a guaranteed death benefit for beneficiaries while you remain invested.  In other words, you can participate in future growth without risking any downside losses for your beneficiaries.

Advisory variable annuities come with no commissions, no surrender charges, no Mortality & Expense charges, and 100% liquidity from day one. An additional benefit may include tax deferral, but this can also be a negative as it may convert capital gains to ordinary income which could increase tax costs later. So the tax pros and cons need to be discussed with your financial advisor PRIOR to deciding whether an advisory variable annuity is the best solution for you.

Here are some general examples of when an advisory variable annuity can be a great tool for locking in today's high values for your beneficiaries:

  1. If your stock investments are already in a retirement account, like an IRA, there won't be any effect on tax consequences.
  2. If you want to lock in today's high values so that your beneficiaries can receive today's value, less any withdrawals you make, when you pass away even if the stock markets have declined. Again, tax consequences need to be reviewed if the investments are not currently in a tax-deferred account.
  3. If you have an existing variable annuity where the account value (a.k.a. surrender value or contract value) is much higher than the Death Benefit. In this case, a 1035 exchange to a new variable annuity will cause your death benefit to step up to the current account value.
  4. An advisory variable annuity, as noted above, has lower expenses than a commission-based variable annuity, which could save you money. However, your financial advisor does need to get paid, so compare total costs which will include the advisor's management fee on an advisory variable annuity.
  5. If you currently have a commission-based annuity, but would like active management from a professional advisor. In this case, an exchange into an advisory annuity may be a great opportunity.

Warning:  DO NOT exchange from another variable annuity if it has a living benefit that you intend to use without first discussing the consequences and alternatives with a professional adviser.  These retirement income living benefits act like pension income, typically for your entire life, and will be lost if you surrender/exchange the variable annuity.  It could still make sense, but often doesn't, so get professional advice first. This blog post is not intended to be a recommendation for your specific circumstances, which are unknown to us without a discussion.


Almost three years ago, a client put $285,000 into a variable annuity and locked in a guaranteed Death Benefit for her beneficiaries of at least $285,000 even if the investments declined in value. The money was invested in a globally diversified portfolio of stock funds. Today the account value is $358,000, but the guaranteed Death Benefit remains only the original investment of $285,000 (of course, beneficiaries receive the account value if it is higher than the guaranteed Death Benefit). By exchanging to a new advisory variable annuity, the client can lock in today's value of $358,000 as the new guaranteed Death Benefit for her beneficiaries, and remain invested in stocks with no downside risk to the Death Benefit. By contrast, if the current account is kept, and the stock market were to decline, the beneficiaries could lose the current $73,000 of gains above the current Death Benefit.

Note, this client's variable annuity does not have a living benefit rider, so no benefit is lost by making an exchange to a new annuity. Also, there is no cost and no tax consequence for her to make an exchange. All considerations that may or may not apply to your circumstances, hence a conversation with your financial advisor is warranted.


Schedule a call with us to discuss your unique circumstances if you want to lock in your current account values for beneficiaries. It may or may not make sense for your personal situation, but we'll get to a clear determination of that together.

Click here to book a call via our online calendar.