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    Taxes & Annuities

    Estate Tax Considerations for Annuities

    Annuities pass to heirs differently than many assets. Understanding how they fit into your estate plan helps preserve more of your legacy.

    Estate planning documents and pen on desk
    Annuities pass to beneficiaries by contract — usually outside probate.

    How Annuities Transfer at Death

    Annuities typically pass directly to named beneficiaries, bypassing probate. The contract terms — not your will — control who inherits.

    Estate Tax Inclusion

    The value of annuities is usually included in the owner's gross estate for federal estate tax purposes. Federal exemptions are currently high but scheduled to change.

    No Step-Up in Basis

    Unlike stocks or real estate, annuities don't receive a step-up in basis at death — meaning all gains remain taxable to beneficiaries as ordinary income.

    Trust as Beneficiary

    Naming a trust as annuity beneficiary is sometimes done for control reasons but can shorten the distribution timeline and accelerate taxes. Coordinate carefully with your estate attorney.

    The Bottom Line

    Annuities are useful estate tools when used intentionally. Coordinate with a qualified estate planning attorney and tax professional to align them with your overall legacy plan.

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