How to move my dads Annuity after his death

Submitted by Donald McCullough on Fri, 2018-04-20 14:51

My Dad recently passed I am the successor trustee, he had an Annuity worth 35,000 I need to find a way to move the money in the Annuity to pay his bills that his estate owns. Can I do this with out being over taxed , I don’t know at this time if there is a way to move this money with out being taxed. If this Annuity is taxable could tell me at what rate it will be taxed at . The beneficiary of this Annuity is his Trust , I am the successor trustee to the trust.

Thank you
Donald



Submitted by Alan - IRA critic on Fri, 2018-04-20 15:34

The actual tax bill for cashing in all or part of the annuity depends on whether the trust document allows you to pass income out of the trust to the beneficiaries of the trust or requires the income to be retained in the trust. In the former situation, the gains on the annuity (which typically come of the annuity first) are taxed at the individual’s rate but if the trust pays the taxes the trust rates will be higher. So the first thing you need to determine is how much of the annuity needs to be cashed in and how much of the 35,000 represents gains on his individual investment. You also need to determine from the insurance company what the annuity distribution requirements will be with the trust as beneficiary.

Submitted by Donald McCullough on Fri, 2018-04-20 19:06

The trust document allows me to move income where it needs to go . The trust states that I may use the income as I the fiducary see  necessary to use it, first to pay bills repair his estate, pay property taxes , maintain the property until repairs are completed, so the property can be put back on the market again.  The only gains on the annuity would be the RMD that he received once a year, those RMD were reported on his income tax each year. So the only remaining money in the annuity is the opening balance, the princple. The Annuity is no longer making gains, not sicen 2016 my dad never made any new elections for his investment do to his poor health. I am going to cash out the whole annuity to pay his bills, funeral expences, property taxes ect. The insurance company asked me where I wanted to move the balance, to either to myself of an account. Is the individual tax rate is the same as my income tax rate ? What is the tax rate of a trust in Michigan if the taxes are paid by the trust ?

Submitted by Alan - IRA critic on Fri, 2018-04-20 22:25

  • If you are going to distribute the entire annuity, RMDs will not be an issue. However, if this is a NQ annuity the tax rules are entirely different than an IRA annuity. Is this an IRA annuity?  If so, you should look at his recent tax returns to see if Form 8606 is attached, or look at line 15a and 15b on that return to see if they are identical. If they are identical, then the distribution of the IRA annuity is fully taxable. In other words, if this is an IRA annuity the taxes will be higher than if it was a non qualified annuity. I cannot tell you what MI tax rates are, but federal tax rates for distributions to a trust are higher than for individuals, perhaps considerably higher.
  • You will probably need help to file Form 1041 and MI state equivalent to report the trust income and deductions. I cannot help you with those details.

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