William Penn Life, 2016 (51. évfolyam, 1-12. szám)

2016-11-01 / 11. szám

Annuity Essentials b^ebbi^^an^

The devil is in the details

Assigning ownership of non-qualified annuities

Assigning ownership of a non-qualified annuity to someone other than the annuitant can be a slippery slope from a tax perspective. Also, designating a beneficiary can be as puzzling when it comes to an ownership assignment.

The first thing one should consider before assigning ownership is the tax ramifications. Generally speaking, if you are the owner and annuitant of an annuity contract and wish to assign new ownership, you will be taxed on the gains (interest earned to date). The new owner will be responsible for interest earnings thereafter. So, please make sure you are familiar with and understand the language within the annuity contract prior to assigning new ownership.

Usually, annuities fall into two categories: annuitant-driven and owner-driven. One might think that any annuity contract is either one or the other, but it is not quite that simple. For tax purposes, the IRS considers all deferred annuity contracts issued since Jan. 18, 1985, as owner-driven even if the contract language refers to it as annuitant-driven.

With that said, annuitant-driven annuities pay a death benefit when the annuitant dies. If the annuitant-driven annuity was issued after Jan. 18,1985 (and there is an owner other than the annuitant), it must pay the death benefit when the owner dies. Simply stated, upon the death of either the annuitant or owner, there will be a payout of the annuity proceeds to the named beneficiary.

On the other hand, owner-driven annuities pay a death benefit to the named beneficiary only upon the death of the owner. Should the annuitant die, the owner simply names a new annuitant.

This information is a very elementary take on a very complex subject. However, the main point is that if you are both the annuity owner and annuitant and are thinking about assigning new ownership, be sure to know what is contained in the annuity contract language. Find out if the new contract you are about to purchase is annuitant-driven or owner-driven. Also, keep in mind that if the owner and annuitant are different, the annuitant has no ownership rights in the contract.

Here's an example of how complex this subject can be. You are both the owner and beneficiary of an annuitant-driven annuity. Your wife is the annuitant. Upon your wife's death, per current IRS regulations, you will have to receive the death benefit proceeds. In addition, this is a taxable event, and you will not have the opportunity to elect the tax-free spousal continuation.

This is only one of many possible scenarios. The simplest scenario to understand, and one way to avoid many pitfalls, is to have the owner and annuitant listed as the same individual. Upon your death, the named beneficiary receives proceeds. If that sole primary beneficiary is your wife, she has the option to continue the contract.

See a tax specialist before you make any decisions regarding assigning ownership of an annuity. It will be in the best interest of all parties involved. □

Debbie Evans, FIC, is WPA's annuity specialist. You can reach Debbie at 1-800-848-7366, ext. 127, or by email at devans@wpalife.org.

To learn more about qualified and non-qualified annuities and how a William Penn Association tax-deferred annuity can benefit you and your financial future, contact your local WPA representative or our Home Office toll-free at:

1-800-848-7366

8 0 November 2016 0 WILLIAM PENN LIFE

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