Inheriting an annuity can be a blessing but it’s important to understand what your options are. An annuity is a financial product that provides a regular stream of income over a specified period or for the lifetime of the annuitant. If you have recently inherited an annuity, it’s important to be informed and take appropriate steps to make the most of this asset. Let’s discuss what you should do if you are in this situation.
- Read the fine print: The first step is to thoroughly review the terms and conditions of the inherited annuity. Understand the type of annuity it is, such as a fixed annuity, variable annuity, or indexed annuity. Take note of the annuitant’s original investment, any guarantees, payout options, and any applicable fees or penalties. This information will help you make informed decisions going forward.
- Determine Your Relationship to the Annuitant: Your relationship to the annuitant will determine the options available to you. If you are the spouse of the annuitant, you may have different choices than a non-spouse beneficiary. Spousal beneficiaries may have the option to assume the annuity contract, continue receiving payments, or transfer the annuity to their name. Non-spouse beneficiaries often have the option to receive a lump sum, payment over a certain number of years, or establish a new annuity.
- Consult with Professionals: Inheriting an annuity can have tax implications and complex financial considerations. Consult with professionals such as financial advisors, tax advisors, or estate planning attorneys. They can help you navigate the intricacies of the inherited annuity, understand the tax implications, and provide guidance on the most suitable course of action based on your individual circumstances.
- Consider Your Financial Goals and Needs: Consider your financial goals and needs when deciding what to do with the inherited annuity. Assess whether the annuity aligns with your long-term financial objectives. Evaluate other financial resources and assets you have and determine how the annuity fits into your overall financial plan. Consider factors such as your age, risk tolerance, and the current economic environment.
- Evaluate Payout Options: Depending on the type of annuity and the options available, you may have choices regarding how you receive payments. Common options include taking a lump sum distribution, receiving regular payments over a specified period, or setting up a new annuity in your name. Carefully evaluate each option, considering factors such as your income needs, tax implications, and future financial goals.
- Understand the Tax Implications: Inherited annuities may have tax consequences, so it’s important to understand the tax rules that apply. The tax treatment varies depending on various factors, including the relationship to the annuitant, the age of the annuitant at the time of their passing, and the payout option chosen. Consulting with a tax advisor can help you navigate the tax implications and minimize potential tax liabilities.
- Review Beneficiary Designations: If you decide to keep the inherited annuity, review and update the beneficiary designations if necessary. Ensure that the designated beneficiaries align with your current wishes and any changes in your life circumstances. Regularly reviewing and updating beneficiary designations is essential to ensure that your assets pass according to your wishes.
Inheriting an annuity can be a significant financial event. Taking the time to understand your options, consult with professionals, and evaluate your financial goals will help you make informed decisions regarding the inherited annuity. By considering your unique circumstances and seeking expert advice, you can effectively manage this asset and make choices that align with your financial objectives.
The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision. Stratos Wealth Partners and LPL Financial do not offer tax advice or services.