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Annuities and Estate Planning

Annuities can play a part of your estate planning strategy. However, because they are a life insurance product, there are things you should know about their tax and inheritance implications.

Joint Ownership Annuities

With a jointly owned annuity, the phase you are in within the annuity will dictate what steps you should take in the event you or your spouse passes away.

If one of you dies during the accumulation phase before payouts begin, the surviving spouse will become the sole owner of it. The survivor can re-register it and continue to use it as a long-term, tax-sheltered savings vehicle.

If payouts have already begun, the survivor is able to take ownership of the annuity and continue receiving income from it. However, if the survivor has been named as the beneficiary of the contract and is younger than 59 1/2 years old, it might be a better idea to take the death-benefit payout to avoid a potential tax penalty.

Designated Beneficiary

The named beneficiary of a non-jointly-owned annuity receives outstanding funds in the contract upon the owner’s death. This is a direct payment from the insurance company issuing the annuity without having to go through probate. The payment can be given as a lump payout, as five equal installments or as lifetime income. Instead of being taxed as capital gains, it is taxed as ordinary income.

Learn more about how annuities can be effective estate planning tools by scheduling a free consultation with My Annuity Guy. We can review your financial situation to determine the best estate planning strategy, and how it fits in with the rest of your financial goals.

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