Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers.  Here’s the question of the day.

Question: My client has a nonqualified deferred annuity that he wants to transfer to his son.  What are the federal tax consequences of doing so?

Answer: There are two federal tax considerations—income tax and gift tax.

First, the transfer of a nonqualified annuity to someone other than spouse is taxed as a surrender of the contract for federal income tax purposes.  The client will have to pay ordinary income tax (plus penalty tax, if applicable) to the gain portion of the annuity.

Second, the value of the annuity is subject to potential federal gift taxes upon transfer of the contract to the son.  If the value of the annuity plus any additional gifts to son in the calendar year is more than $13,000, the client must fill out a gift tax return to determine the amount of tax due, if any.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.