Think twice before naming your trust as the owner or beneficiary of your annuity

One of the major benefits of a deferred annuity is the ability to delay paying taxes on all of the gains. By kicking the tax-liability can down the road, you are essentially utilizing an interest-free loan of the government’s tax cut while you continue to enjoy compounding growth within your annuity. Moreover, the IRS allows your beneficiary spouse to stand in your shoes at your death and continue to defer taxes for their lifetime without any required minimum distributions. Even your children, if they are designated as your beneficiaries, are permitted under current tax law to take only relatively small amounts out each year from their inherited annuity based on their life expectancy. This concept is known as a non-qualified stretch annuity. If structured correctly, an annuity can be used to defer taxes over several lives.

However, if your annuity’s beneficiary is a trust, all of the funds in the annuity must be distributed to the trust, (and taxes paid) within five years of the owner’s death — even if the spouse is the trust beneficiary. Unfortunately trusts are taxed at the top tax bracket after only $12,500 of income.

Many of you paid good money for your trusts and you like maintaining some control over how trust assets are distributed after your death, but you are essentially going to have to decide what is more important to you: minimizing the tax bite for your family or controlling how your kids spend their inheritance. Since a spouse isn’t even required to take required minimum distributions as the beneficiary, I usually recommend putting the spouse as the beneficiary of one’s annuities. For those looking to minimize taxes for their kids and still maintain some control, certain insurance carriers allow contract owners to create restricted beneficiary designation for their children.


Keith Singer

Keith Singer, a well-known financial advisor in Florida, is both a CERTIFIED FINANCIAL PLANNER™ (CFP®) practitioner and a licensed Florida attorney.

Ready to Take The Next Step?

For more information about any of the products and services listed here, schedule a meeting today or register to attend a seminar.

Or give us a call at 561.998.9985