Rights and Options to Beneficiaries

Upon the death of the owner (in an owner driven contract) or annuitant (in an annuitant driven contract), the death benefit can be paid to the party or parties listed as the named beneficiary. Upon receipt of the dollars, the beneficiary will have to pay income taxes on the pre-tax earnings of the annuity. The key question is when do the beneficiaries have to receive the death benefit. That answer depends upon if the owner died and if the beneficiary is the surviving spouse or not and the annuity contract. A surviving spouse may defer receipt if the owner dies and, hence, defer income taxes by continuing the annuity as if it were their annuity. On the other hand, if the beneficiary is a non–spouse and the owner dies, they have 5 years–measured from the date of death to receive 100% of the proceeds or they may annuitize over their life expectancy, but annuitization must begin before December 31st in the year following the year of death.