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Question for the Money Doctors

Question submitted on Aug 3, 2013.

Question

I am the ownwer of a fixed rate deferred annuity contract. Can I accomplish a tax free transfer of ownership to my spouse?

Jim Palmer

Answer

If both of you are US Citizens, you can pass unlimited amounts of property between spouses. There is no estate or gift tax considerations. This may get more complicated if you are in a Community Property state.

However, you are talking about an Annuity. An Annuity is a contract YOU have with an insurance company. Your spouse can be the beneficiary of your Annuity which means she will receive your Annuity upon your death. She will have various options at that time. I assume she is the beneficiary of your Annuity? Please check your Annuity contract to see what are the options. They include a lump sum payout or payments over a period of time.

I assume this Annuity is outside of an IRA or retirement account. If it is inside an IRA or retirement account, you cannot transfer the annuity to your spouse while you are still alive. If you pass away, you spouse can roll this over into her own IRA.

You can transfer annuities to another annuity via a tax free 1035 exchange. However, this is only available to you. If you have an older fixed annuity, it may be worthwhile to hold onto it since it may have a pretty good interest rate. Currently the interest rates are very low for new fixed annuities. I've seen some at 8% and I advise those holders to keep those annuities.

You cannot transfer this annuity in its form to your spouse. She will have to get a new annuity. You may be subject to surrender charges and there may be a tax consequence.

You should review this with the insurance company to understand all the consequences of transferring ownership to your spouse. Make sure you understand the surrender charges and the interest guarantee you may be giving up. You may also give up on annuitization options that are available to you in this contract. This can get complex, I suggest finding a local CPA/PFS to help you analyze this by visiting http://www.findacpapfs.org.


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