Annuity Opens Up Tax and Estate Plans

Seniors can pay little or no income tax with annuities.

Pay little or no tax with annuities

Older persons, who have annuities that are not tax sheltered, often pay little or no income tax on their income due to their age.

And if they have selected an annuity with income guaranteed for a number of years, that tax free income could continue beyond their lifetimes.

So what is the tax situation if this couple die before the guaranteed period ends? The payments will continue of course, but does the beneficiary also inherit the payments tax-free ? Normally any beneficiary is younger, perhaps sons or daughters or even grandchildren, who fall into taxable age brackets.

We investigated this question for a client who needed the income from the annuity to live on and who also wanted to leave income to a beneficiary.

You may be surprised to know, that whatever the age of a beneficiary, he or she would not pay any tax at all. The policy originated with no taxable gain and will continue as such. This ruling has now opened up a new window in tax and estate planning.

Thus an older couple with little or no tax on their monthly annuity payment, can opt for a much longer guarantee period to guarantee tax-free payments to their children. This planning is especially suitable for otherwise spendthrift offspring.