Shortcut Navigation:

Question for the Money Doctors

Question submitted on Apr 22, 2010.

Question

My husband's mother had a variable annunity. She is now deceased (2010) and this is the only asset within her estate. As I understand the product, the estate will be taxed, when the annunity is cashed in, for the difference between the basis/cost and the value as ordinary income at estate tax rates. Is there any way to divide that liability between the beneficiaries rather than the estate paying the taxes?

Answer

In the event of death, the proceeds of an annuity go directly to the specified beneficary, thereby avoiding probate.  Although the death benefit avoids probate, if payable to a named beneficiary, the value of the annutiy is generally included in the decedent's estate for estate tax valuation purposes.  If an individual, other that the estate, is named as the beneficiary, the beneficiary may be subject to ordinary income tx on the earnings portion of the proceeds. Who is listed as the beneficiary of the annuity? I am assuming she was. 


For additional information visit http://www.360financialliteracy.org/