by John Darer CLU ChFC MSSC CeFT RSP CLTC
What Happens to an Annuity When You Die?
If the annuity is a retirement annuity, the policy is in accumulation phase (payouts have not begun at the time of death) AND the owner has named beneficiaries, the value of the annuity on the date of death is paid to the primary beneficiary. An advantage of naming a beneficiary is that the funds are available much faster to the beneficiary than they would be having to go through probate. Some companies give options for extending the deferral of interest. Required minimum distributions may be necessary where the decedent was over 70 1/2 at the time of death.
If the annuity is a payout annuity, such as a deferred income annuity (DIA) single premium income annuity (SPIA) or structured settlement annuity (SSA), AND the annuitant has named a beneficiary, only periodic payments that are certain are paid to beneficiaries, when they are due.
If the annuity is structured settlement annuity (SSA) with a commutation rider that has been in place since the annuity was established, AND the annuitant has named a beneficiary, remaining certain payment are commuted to a lump sum using the formula stated in the contract and paid to the designated beneficiary. In some cases the designated beneficiary may be a trust.
Why Not Naming a Beneficiary to Your Annuity, or Leaving It To Your Estate is a Bad Idea.
If there is no named beneficiary, payments are made to the Estate of the deceased annuitant payee. The value of the annuity on the date of death to must go through the probate estate and will be hit with any fee or charge that is based on the assets of the Estate.
Do you need to name an annuity beneficiary in your will?
No, you do not need to name an annuity beneficiary in your will because all it will do is delay the payment of proceeds while the Estate of the decedent is probated. Naming a beneficiary with the annuity issuer results in much faster and less costly distributions following the death of the annuitant payee.
When this post was first published, Elaine Silverstrini, a writer for the unreliable website Annuity (dot)org, lead generation company for CBC Settlement Funding, clearly did not have a handle on this. She wrote:
"After the death of an annuity owner, annuities can be left to a beneficiary selected by the owner. This means an annuity held by a parent, spouse or another loved can be willed to a person named as a beneficiary".
Ah...no. Not a good idea for the reasons stated above.
Name a beneficiary using the form supplied by the annuty issuer, submit and confirm
You can also name a primary beneficiary and a contingent beneficiary in case the primary beneficiary is not living at the time of your death. With a payout annuity, such as a structured settlement, the beneficiary can name their own beneficiary once they begin receiving payments. Submit any changes on the form provided by the annuity issuer and don't forget to confirm receipt and that changes are properly recorded. Usually a letter goes out to confirm, but you should take practive steps yourself anyway.
Last updated August 5, 2023