IRA in living benefit annuity
My client died with an IRA in a variable annuity with living benefits. The contract value of the sub accounts is considerably less than the death benefit. My client’s surviving spouse can re-title the contract as an IRA in their name and continue as if they were the original owner. However, what are the implications of claiming the much larger death benefit and putting that into another IRA in the spouse’s name? Is the death benefit considered an IRA asset?
Permalink Submitted by Al Fry on Tue, 2009-12-29 01:02
Yes. Some carriers will tell the surviving spouse they only have two options: (1) continue the contract at it’s current value; or (2) take the death benefit as taxable income. This is not correct. The spouse can always get the death benefit check and roll it to his/her own IRA withing 60 days. Some of the more quality companies (at least one I know of) will let the spouse continue the contract at the stepped-up death benefit value. This would be important if the contract had living benefits better than what might be available in a new contract or other IRA.
Permalink Submitted by Bruce Bradshaw on Mon, 2010-01-04 15:20
Thanks Al. You have confirmed my assessment of the situation. I appreciate your feedback.