| Buyers of annuities should be aware of the annuity | | | | Deferred Variable Annuities: |
| inheritance tax. For example, a recent ruling by a | | | | One of the significant features of a deferred variable |
| Louisiana appeals court stated that the entire death | | | | annuity plan is that payouts are treated as ordinary |
| benefit from a single premium annuity plan paid to the | | | | income. If the owner of the plan dies before the |
| beneficiary named in that plan was subject to | | | | annuity's beginning date, all of the interest has to be |
| inheritance tax because it was part of the deceased | | | | distributed within five years of the individual's death, |
| annuity owner's estate. Since individuals may purchase | | | | except when certain conditions apply. |
| annuity plans to avoid such taxes, it's important for | | | | If a designated beneficiary is the spouse of the annuity |
| investors to learn as much as they can about the | | | | owner, at the owner's death, the spouse becomes the |
| potential annuity inheritance tax. | | | | owner of the annuity, and no distributions have been |
| The Louisiana Court Case: | | | | made. Therefore, the spouse keeps the deferred |
| In this case, a son was the sole heir of his deceased | | | | status of the plan. If an annuity owner dies during the |
| mother's estate. He was also the named beneficiary | | | | accumulation phase of the plan, its cash value can be |
| for the death benefit from the nonqualified, | | | | included in the deceased estate if its payable to that |
| tax-deferred, single premium annuity plan she had | | | | estate. If the annuity owner dies after payouts have |
| purchased over her lifetime. The tax collector claimed | | | | started, the remained of the annuity contract must be |
| the entire death benefit should be subject to the | | | | distributed as quickly as the in-force distribution method |
| inheritance tax. The son disagreed, claiming that the | | | | allows. |
| annuity was the same as a life insurance policy and | | | | In General: |
| should not be subject to any tax, and that the earnings | | | | Death benefits from a deferred annuity are considered |
| part of the annuity, being classified both as "income" | | | | ordinary income to the beneficiary of that annuity, just |
| earnings and "inheritance" to the beneficiary, | | | | as the amounts would have been to the owner of the |
| constituted unconstitutional, double taxation. The courts, | | | | annuity if he or she had lived. If a lump sum benefit is |
| however, disagreed. The Appeals Court ruled that | | | | involved, taxes can be deferred on that amount if the |
| proceeds are not like those from life insurance and so | | | | beneficiary chooses to receive a lifetime payout within |
| are subject to inheritance. | | | | sixty days of the owner's death. |