A little-known strategy called a 'death put' can help you lock in higher returns -- without stiffing your heirs.
Are you concerned about the return on your investments or the return of those investments en route to your heirs? If yes, then you might consider an “estate put.”
When it comes to later-in-life investments, yield and time can be unfortunate obstacles. In order to secure the highest yield, you must make long-term investments. Unfortunately, when making such long-term investments, fearing they’ll survive you and fall apart without your guidance is common.
Fortunately, a recent SmartMoney article featured the “death put,” or “estate-feature put,” as known in more dignified circles.
The article, titled “Yield-Hungry Retirees Turn to 'Death Puts,’” describes how the put is just a built-in device that allows heirs to redeem the investment at face value and recoup all that went into the original investment. You can find it on many investment vehicles, even CDs purchased through brokers. Sound attractive? There’s more.
A “death put” can guarantee an investor that an investment won’t eventually turn south or clutter up their estate for their survivors, but it will still secure a decent yield (in a world of low yields) today.
In substance and in form, “death puts” are an add-on and, although comparable to a form of insurance, this means they are subject to the manner in which your broker or investment company writes them. Translation: the devil is in the fine print.
For more on “death puts,” investment ideas, and some of the numbers involved, read the original article. Regardless, this subject matter is another reminder for you to carefully consider (and even reconsider) your investments in the context of your present income needs and future wealth transfer to your heirs.
Like any strategy, a “death put” should only be put in play after thoughtful advice and counsel from a competent estate planning attorney.
Reference: SmartMoney (May 1, 2012) “Yield-Hungry Retirees Turn to 'Death Puts”