Want A Real Challenge? Pre 85 Inherited Annuity ?
So I’ve just come across a real “stumper” that I was hoping maybe one of the encyclopedia’s on here has an answer for.
Situation:
Person A takes out a variable annuity before 1985 and dies soon after leaving the annuity to Person B. Since the original annuity was issued prior to 1/18/85 it wasn’t subjected to mandatory distribution rule(either lump sum, 5 year, or lifetime annuitization). Person B decided to just let the annuity continue to grow without making any additional contributions or taking any distributions. Person B now is in her 70s and could create a situation where this annuity will be inherited for the 2nd time.
Questions:
1) Can Person B name a beneficiary to a pre 1985 (already once) inherited annuity?
2) If yes than does the heir(Person C-3rd owner-2nd inheriter) also get grandfathered into pre 85 status of no requirement to take mandatory distribution?
3) Does anything change with a pre 1985 annuity once its inherited(the first time)?
4) Are we actually looking at a perpetually inheritable and stretchable annuity that as long as the heirs don’t elect to take distributions it could get perpetual multi life deferment, never creating a taxable event?
Permalink Submitted by Alan Spross on Wed, 2012-02-08 22:09
The answer depends on the insurance company and state requirements. While each beneficiary should be able to name a successor beneficiary, the rest of the options are subject to the choices offered to each beneficiary. The choice elected by the first beneficiary will likely also apply to any successor beneficiaries. These contracts cannot be extended indefinitely as the prime intent is to provide deferred income to the original owner.
If person B was a surviving spouse, the continued deferral might be expected. If a non spouse, this is surprising. Was the death reported to the insuror?
This article mentions likely beneficiary options:
http://www.annuityadvisors.com/UploadContent/Stretch-NQ%20Stretch%20Payo…
Permalink Submitted by Alan Spross on Thu, 2012-02-09 04:20
OK, did some research and you are correct about the pre 1985 annuities apparently escaping any subsequent revisions to their grandfather status. However, cannot locate anything with respect to perpetual deferment provisions. Insurors that hold these contracts must know what the options are and they must have technical experts aboard even if the current reps have not come across this issue.
We rarely get questions about old annuities on this board, and used to have a frequent poster that was in that business for years, but have not heard from him for several months.
Sorry could not be of more help.