Author Topic: "pre-advice" on inheriting an insurance annuity  (Read 1698 times)

bortman

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"pre-advice" on inheriting an insurance annuity
« on: December 12, 2016, 06:38:08 PM »
My wife's uncle passed away recently. He had heart issues, so it wasn't really a surprise, but it's still sad and tough to deal with.

Details of the uncle's estate are being worked out, but at first blush it looks like my wife is the benefactor of an insurance annuity. It's large enough that -- depending on the type and conditions, which we don't know yet -- it could affect out income tax situation in bad way.

I'm wondering if there's a situation where the insurance company could say "Ok, here's your annuity. You must take it. Now." ?

Considering that it's December, I don't want to be in a position where we have to accept some, or all, of the proceeds in the current tax year without a lot more preparation.  Or, is there some standard acceptable time window to "take possession" of the annuity or its proceeds?

Ideally, we'd take our time, figure things out, and make well-considered decisions.

BTW, I've been doing research here and elsewhere already, but I'm sure I'll post some follow-up questions on the MMM forums.

CareCPA

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Re: "pre-advice" on inheriting an insurance annuity
« Reply #1 on: December 12, 2016, 06:58:14 PM »
I'm sorry to hear about your wife's uncle.

It really depends on the policy and its details.
Generally speaking, the annuity company is going to want to keep the money as long as possible, because they are going to give you a very conservative return while they hold the money. They will be in no rush (generally) to make you take the money. Plus it takes quite a bit of time to close down an estate.

Also, ensure it is an annuity and not a life insurance policy - very different tax treatments.

bortman

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Re: "pre-advice" on inheriting an insurance annuity
« Reply #2 on: December 13, 2016, 09:33:51 AM »
FrugalGrad, thanks for the response. I've been told it's an annuity, but I've seen no documentation.

Is there a specific document we should request from the insurance company? Or, do we just wait for the estate to be sorted out and take it as it comes?

CareCPA

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Re: "pre-advice" on inheriting an insurance annuity
« Reply #3 on: December 13, 2016, 09:46:14 AM »
Whoever is handling the estate will be responsible for notifying the company of the death. The company will then verify who the beneficiaries of the various policies are. Each beneficiary should get a letter from the company letting them know what their options for withdrawal will be (if there are multiple beneficiaries, you don't need to choose the same withdrawal options as each other). The letter should be sent to the beneficiary, but there is always a chance the company will send it to the estate administrator/executor depending on what address was given on the notification.

Spork

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Re: "pre-advice" on inheriting an insurance annuity
« Reply #4 on: December 14, 2016, 08:04:35 AM »

I'm sort of just thinking aloud here... I'm no tax expert.  I am/was a little bit in this situation this year.  I won't really know what my tax implications are until after the new year when I get the documentation.  I asked for it for a month or two... but never received it.

I suspect (but can't say for sure) that you "receive" the money on paper on the date of death -- even if the insurance company holds onto it for a while.

CareCPA

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Re: "pre-advice" on inheriting an insurance annuity
« Reply #5 on: December 14, 2016, 08:25:06 AM »
For income tax purposes, I would say it is not the date of death (we're going through an estate wrap-up now in my family), because it would not be fixed and determinable. You could choose a lump sum, or annual payments for any option of time that the annuity company will allow. This means it could either be taxable all at once, or over your distribution period.

I would say it is taxable in the year the company cuts you the check, which should be the same year you receive it unless they cut it in the last couple days of the year.

Spork

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Re: "pre-advice" on inheriting an insurance annuity
« Reply #6 on: December 15, 2016, 08:28:01 AM »
For income tax purposes, I would say it is not the date of death (we're going through an estate wrap-up now in my family), because it would not be fixed and determinable. You could choose a lump sum, or annual payments for any option of time that the annuity company will allow. This means it could either be taxable all at once, or over your distribution period.

I would say it is taxable in the year the company cuts you the check, which should be the same year you receive it unless they cut it in the last couple days of the year.

I hadn't thought of that...  Our only option was "do you want us to take out taxes or not".  It didn't occur to me that some of them might give annual payouts.  It was a bit of a leap of faith -- not knowing what the tax implications were going to be (or ACA implications) and not able to get any documentation stating what the implications would be.