Death of Owner: Required Distribution
Federal tax law requires that certain distributions be made from an annuity in the event that any owner of the contract dies. If the owner of the contract is not a natural person, then the annuitant will be considered the owner for the purposes of the rule, and a change of annuitant is treated the same as the death of an owner for tax purposes.
Required distributions are as follows:
- If an owner dies after the annuity starting date, assuming he or she is not also the annuitant, any remaining payments that are due under the annuity must continue to be made at least as quickly as payments were being made prior to the death of the owner.
- If the owner dies before the annuity starting date, the entire value of the annuity must either be distributed within 5 years of the date of the owner’s death, or the value of the annuity must be annuitized within one year of the date of the owner’s death.
There is one exception to the rule requiring distributions in the event of an owner’s death. If the beneficiary of the annuity is the surviving spouse of the deceased owner, then the surviving spouse is permitted to become the owner. Distributions will not be required until the surviving spouse’s subsequent death.
Printed with permission of Advanced Underwriting Consultants
Last Updated: 9/23/2012 10:05:00 PM