Death of an Annuitant

1. Ordinary income tax adjustment.
   As discussed earlier, some annuity contracts are owner-driven and some are annuitant-driven. With the annuitant-driven contracts, a death benefit can be paid to the named beneficiaries if the annuitant dies. The beneficiaries will pay ordinary income taxes on the tax-deferred dollars received if this occurs.
2. Annuity benefits and distributions.
   The beneficiary may select a settlement in lieu of a lump sum and receive tax-advantaged income based on the exclusion ratio. In the event that the annuitant dies after annuitization has begun, then the beneficiary will pay income taxes based on the already determined exclusion ratio.