Time Value of Money _ - Essay Example

It is important that lawyers should note the key issues in annuity sale and investment. The relationship between a trustee and the beneficiaries is fiduciary (Warren, Reeve & Duchac, 2012). Trustee must in his profession exercise diligence, prudence, and care in managing the affairs of other persons. The principal duties of a trustee include; not making profit out of his trust, acting in good faith, to be accountable to his beneficiaries, not to misuse confidential information or put himself in a position where interests and duty is conflict (Warren, Reeve & Duchac, 2012).

The circumstances that trustee should consider while making investments include the general economic conditions, the expected tax consequences of investment strategies, the possible effects of inflation or deflation, the appreciation of capital and expected total returns, the other resources that the beneficiary has, needs for liquidity and regularities of income, an assets special value to the purposes of the trust and to the other beneficiaries. Variable annuities can either be deferred or immediate.

Variable annuities allow an investor to choose from sub accounts that include geographic, sector and brood index stock funds. They also have affixed account.Varible annuities convert capital gains into ordinary income and have considerably higher expenses compared with comparable mutual funds. For this reason they are quite unsuitable for most investors. Equity indexed annuities offer reduced equity participation but with protection against losses. The level of equity indexed annuities caps will be related with interest rates and not stock prices.

EIAs have larger commissions associated with them. Larger commissions are usually linked to complex surrender charges for long periods, hence less liquid and elastic. Equity indexed annuities promise a capped participation in equity returns, with a guarantee that no losses will be incurred. Equity indexed annuities are a hybrid fixed not