I have two questions about a non-qualified annuity that I have. I started the annuity with $50,000 and it is now worth roughly $100,000
1) If i switch the ownership from myself individually to my living trust using the same tax id number.....will that be a taxable event?
2) If I leave the annuity under my individual ownership but change the beneficiary to my living trust; upon my passing how will the taxes be handled? Will my trust have to pay taxes on the gains? Will my trust be able to stretch these proceeds out over time?...or will the individuals that receive the proceeds from my trust be able to stretch the proceeds out over time?
Hello mavrik07. Thanks for joining our event today.
1. I would like to start by saying that these are complex issues, and you should not engage in this transfer without professional advice and assistance. However, I will give as simple an answer as I can here. Typically, if an annuity is transferred to a grantor trust, the ownership remains the same, and therefore there is no transfer for income tax purposes. (Annuities transferred to non-grantor trusts would incur taxable recognition of gain.)
2. Changing the beneficiary to a trust will impact the tax consequences. The trust would be required to realize the income from the annuity, and pay taxes on the gain/earnings beyond your investment, within 5 years of your passing. In contrast, typically a living beneficiary would have 3 options: take a lump sum taxable payout, take the proceeds over 5 years, paying taxes as they go, or schedule withdrawals based on their expected lifespan. A trust cannot stretch the payments over time as it has no lifespan. (the payments would go on for eternity)