Advanced Underwriting Consultants

Question of the Day – September 27

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 recently passed away.  The client was receiving payments under a period certain immediate annuity.  Is the annuity included in the client’s estate for estate tax purposes?

Answer: Yes.

If an immediate annuity contains a refund or period certain feature, the post-death payments are includable in the gross estate for federal estate tax purposes under Revenue Code Section 2033 if payable to the estate, or Revenue Code Section 2039 if payable to a named beneficiary.  Where the death benefit is payable as periodic payments over some time period, the present value of the remaining payments is included.  Present value is determined by reference to IRS regulations and applying its relevant discount rate.

The same Revenue Code Sections reach the annuity death benefit paid when death occurs prior to annuity starting date.  Where the death benefit is paid in a lump-sum, that figure is included in the gross estate.

In case of a joint and survivor annuity purchased with the decedent’s premium payment, the value included in the gross estate will be an amount equal to the premium an insurance company would charge on the date of death for an identical single life annuity on the survivor.  Of course, remaining payments to a surviving spouse might qualify for the unlimited marital deduction.

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.