Inheritance Tax Questions

wbdavidson · 09-01-2009, 05:09 PM

If my client receives an inheritance can they bypass the inheritance tax by putting the money in an annuity?

Also, when this client passes, the money goes to the beneficiary and they only have to pay income tax on the initial prem or the gain? or do they have to pay inheritance tax as well?

Thanks, I'm def not an annuity guru.

padthaiforlunch · 09-01-2009, 05:52 PM

Originally Posted by wbdavidson

If my client receives an inheritance can they bypass the inheritance tax by putting the money in an annuity?

Also, when this client passes, the money goes to the beneficiary and they only have to pay income tax on the initial prem or the gain? or do they have to pay inheritance tax as well?

Thanks, I'm def not an annuity guru.

1. No
2. bene doesn't pay income tax in inheritance. There is no federal inheritance tax.

insuranceexec · 09-01-2009, 05:53 PM

Some companies will allow the bene to continue the annuity as a settlement option. As far as taxation; check your state law as they all are different.

They will owe tax on anything above the cost basis. There is no stepped up cost basis as it relates to annuities.

If the money is qualified it could be "stretched" to the next generation; while keep its tax deferred status. This would have needed to be done prior to the annuitant passing away.

I assume you are referring to INCOME tax.

somarco · 09-01-2009, 07:22 PM

Inheritance taxes are state specific, and most states don't have inheritance taxes.

If you are asking about estate taxes, state or federal, then clarify.

Either way, if there is constructive receipt of the inheritance, I can't think of a way to avoid taxation, with or without the annuity.

padthaiforlunch · 09-02-2009, 06:03 PM

Step-up in basis is irrelevant.

If your state does not have an inheritance tax, then the only issue is estate tax. If any is due, it is paid by the estate, not the beneficiary.

Constructive receipt of the inheritance does not create a taxable event for the beneficiary, unless the state has inheritance tax.

In certain circumstances, the annuity can be "stretched." This will create taxes for the beneficiary on the earnings.

If the "gift" earns interest or income, that is what will be taxed.

Charpress · 09-03-2009, 12:22 PM

Putting money into an annuity after a death would be pointless. There might be advantages prior to death, but it is a very fact specific area.