A potential client has an annuity policy owned by their Trust, with the husband as the annuitant, and the trust as the beneficiary. The husband (annuitant) has passed away. The insurance company is telling the client (surviving spouse and TTEE of the trust) that because the beneficiary is the trust, the only death claim option available is to have the policy paid out in a lump sum to the trust. Does this sound correct? The concern here is trying to avoid unnecessary taxes.

Ultimately the client would like to process a 1035 exchange to another carrier.