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Can Annuities Be Inherited?

June 07, 2024

One common question that arises when planning for the future is whether annuities can be inherited. In this section, we dive into the details to help you understand how annuity inheritance works.

What Are Annuities?

An annuity is a financial product that provides a steady stream of income, typically for retirement, in exchange for an initial lump sum or a series of payments. There are different types of annuities, including fixed, variable, immediate, and deferred, each with its unique features and benefits. Annuities can serve as a reliable income source for individuals, offering financial security in retirement.

Annuity Beneficiaries: Key to Inheritance

The inheritance of an annuity primarily hinges on the designation of beneficiaries. When setting up an annuity, the owner designates one or more beneficiaries who will receive the remaining benefits upon the owner's death. Here’s how it works:

  1. Primary Beneficiary: The person (or persons) first in line to receive the annuity benefits.
  2. Contingent Beneficiary: The person (or persons) who will receive the benefits if the primary beneficiary is deceased.

Types of Annuities and Inheritance

The type of annuity influences how and what beneficiaries inherit:

1. Fixed and Variable Annuities

  • Fixed Annuities: Provide guaranteed payouts that do not change over time.
  • Variable Annuities: Payouts can fluctuate based on the performance of the investments within the annuity.

In both cases, if the annuity owner dies before the contract is annuitized (the payout phase has started), the beneficiaries usually receive the annuity’s accumulated value or death benefit.

2. Immediate Annuities

These begin payments almost immediately after a lump sum is paid. If the annuitant dies, what happens next depends on the payout option chosen:

  • Life Annuity: Payments stop upon the annuitant's death, leaving nothing for beneficiaries.
  • Life Annuity with Period Certain: Guarantees payments for a specified period. If the annuitant dies before the period ends, beneficiaries receive the remaining payments.
  • Joint and Survivor Annuity: Continues payments to a surviving spouse or designated person after the annuitant's death.

3. Deferred Annuities

Deferred annuities have an accumulation phase where the annuity grows tax-deferred and a payout phase that starts later. If the owner dies during the accumulation phase, beneficiaries receive the accumulated value or death benefit. If the owner dies during the payout phase, the inheritance depends on the payout option chosen, similar to immediate annuities.

Tax Implications for Beneficiaries

Inheriting an annuity has tax implications:

  1. Non-Spouse Beneficiaries:

    • Typically, non-spouse beneficiaries must pay taxes on the inherited annuity. The taxable amount is the difference between the annuity’s value and the initial investment (the amount invested in the annuity).
    • Beneficiaries can choose to receive the payout as a lump sum or over a period, with the latter potentially reducing the annual tax burden.

  1. Spousal Beneficiaries:

    • Spouses have the option to continue the annuity contract, effectively becoming the new owner, and can defer taxes until they start receiving payouts.

Steps to Ensure Smooth Inheritance

To ensure your annuity is inherited according to your wishes, follow these steps:

  1. Designate Beneficiaries: Clearly specify primary and contingent beneficiaries when purchasing the annuity.
  2. Review Regularly: Periodically review and update beneficiary designations to reflect life changes like marriage, divorce, or the birth of children.
  3. Consult a Professional: Work with a financial advisor or estate planner to understand the specific terms of your annuity and how they fit into your overall estate plan.


Annuities can indeed be inherited, but the process and implications vary based on the type of annuity, the payout options chosen, and the designated beneficiaries. Understanding these factors is essential to ensure your financial legacy aligns with your wishes and provides the intended benefits to your heirs. By carefully planning and consulting with professionals, you can make informed decisions that secure your and your loved ones’ financial future.

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