(720) 528-4227

AnnuityChoosing the annuity that is best for you is important.  Of course, you will think it through and work closely with your financial advisor to choose the right one.  You may still not know how your annuity fits into your estate plan and what happens to the payments after you pass.

Some annuities can continue to have a positive impact on your loved ones after you pass as long as you made adequate plans to fulfill that goal with your estate plan.

Types of annuities

Your annuity type affects how things pay out after your death. Some annuities stop payments when you pass and others continue payments to beneficiaries.  If your annuity does make payments after you pass, you must stay on top of your beneficiary designations so the payments go to who you want.  You should work with your financial advisor to choose the right kind of annuity, and you should work with your estate planning attorney to make sure your beneficiaries are correct.

Why you need to name your beneficiaries explicitly

You may not know this, but your will or trust does not automatically control your annuities.  Rather, you need to coordinate your designated beneficiaries on your annuity with either your will or your trust.  Otherwise, you run the risk of your annuity not working consistently with the rest of your estate plan.

Annuity death benefits

You can get death benefits from your annuity in several ways to continue passing on your wealth to your loved ones after you pass.

  • Standard death benefit: The annuity’s value when you pass away is distributed to your beneficiary.
  • Return of premium death benefit: The initial premium you paid is distributed to your beneficiary, unless the current value of the annuity is greater.
  • Stepped-up death benefit: The highest anniversary value is distributed to your beneficiary.

Your beneficiary can decide if they want the distributions in one lump sum or spread out over a period of time.  With so many options, it is important to work with your financial advisor and your estate planning attorney to make sure that the annuity that you choose fits into your financial plan and your estate plan.  If you already have an annuity, discuss it with your estate planning attorney so that it is incorporated into your estate plan.

Annuity taxation

Annuities are subject to tax.  If your estate is large enough ($5.49 million individually or $10.98 million as a couple in 2017), then the annuity is subject to estate tax.  Otherwise, the annuity distributions are income for your beneficiaries, who have to pay that tax.  Many times, though, your surviving spouse can received benefits without paying taxes.

How your estate planning attorney can help

Your financial and estate planning decisions are important decisions that can impact your loved ones.  It is imperative that you make sure that your annuity works exactly like you want it to and try to minimize taxes.  Contact The Rains Law Firm or schedule a complimentary initial meeting to make sure your annuity fits in with your estate plan.