Not an IRA question, but need help – Non Qualified Annuity change of ownership from trust to trust beneficiary – taxable event?

Submitted by Michael Neuenschwander on Tue, 2020-01-21 14:39

In this case, an uncle, set up a trust for nieces and nephews and bought each of them their own separate non qualified annuity. (the trust was the owner, but each niece and nephew were the annuitant and beneficiary on their own policy). The trust and the annuity has run its course and the trustee as well as the beneficiaries want to change the ownership on the existing policy from the trust to the beneficiary. Thus they will control / own the policy and the trust can shut down.

I’ve seen conflicting answers. Normally a change is annuity ownership is a taxable event, however I’ve also seen that changing the ownership from the trust to the beneficiary of that trust is not a taxable event.

Just wondering if anyone can shed any further light on this area.

thank you,

Michael



Submitted by Alan - IRA critic on Tue, 2020-01-21 19:06

  • It is not a taxable event, since the transfer is not a gift since then the niece and nephew are already beneficial owners of the annuity. See the following copied from an article by Michael Kitces:
  • “Ironically, in situations where an annuity is transferred out of a trust, the transaction also does not trigger IRC Section 72(e)(4)(C), as the IRS reads the provision literally, and since it states that it must be “an individual who holds an annuity…” a trust that owns the annuity in the first place isn’t an individual and therefore cannot trigger tax treatment by transferring the contract. Thus, in PLR 201124008, where an annuity was distributed in-kind by a bypass trust to its trust natural person trust beneficiary, the transfer was not taxable at the time.”

Add new comment

Log in or register to post comments