A tontine is a simple financial arrangement in which a group of participants contribute money to buy an asset and receive a share of the cashflow from that asset for as long as they remain alive.
Where did tontines come from? What are they for?
Start learning why the 400 year old tontine has always proven so popular all over the world
What is a tontine?
Where does the cashflow come from?
The cashflow comes from the assets financed by the contributions of the members.
Historically these assets included toll-bridges, hotels, commercial real estate or a government bond portfolio.
Who manages the tontine?
Regardless of whether the tontine is created by a government, a city or among a number of private individuals, a tontine administrator is appointed to act in a fiduciary capacity safeguarding the asset and distribution of the cashflow to the surviving members.
What happens when a member of the tontine dies?
Whenever a member dies, the portion of the cashflow being received by the surviving members increases.
Example: A tontine has 11 members each receiving $1,000 per month ($11,000 in total). 1 member passes away. The 10 remaining members now receive $1,100 per month.
How long does a tontine last for?
A properly designed tontine continues dividing up the cashflow for as long as at least two members are alive.
What happens when there is only one member left?
Typically, when the second last member passes away, the assets of the tontine are distributed to the sole surviving member that has been blessed with the longest life.
Why would someone become a member of a tontine?
Tontines are the simplest possible 'passive income strategy' because the only requirement to receive a steady stream of cashflow is that the member remains alive.
Why not buy an income generating asset to generate passive income?
The cashflow paid by a tontine will always be higher because it includes a portion of the cashflow no longer being paid to the members that have already passed away.
Who invented the tontine?
The name 'tontine' comes from the Italian banker Lorenzo Di Tonti who designed a national tontine to raise money for the king of France.
That said, tontine type arrangements are part of a cultural heritage stretching back to the cradle of civilisation in the middle east where the greeting 'live long & prosper' is still used to this day.
Why did tontines become so popular?
According to the ‘godfather’ of economics Adam Smith, the reason that tontines ‘always raise more money and faster’ than any other financial instrument is that each of us fancies our chances of living a very long life if we know that we will have plenty of money to live on in our golden years.
What tontines are available today?
Since 2007 financial experts and institutions have called for the return of tontines to help solve the global pensions crisis.
Tontine Trust was established to make modern tontines a reality for savers all over the world.
The first modern tontine is the TontineIRA® which is optimised for the needs of US savers.