Annuities are insurance plans that can be accessed at a certain age, with payments often coming from stock market investments. Annuity beneficiaries may be subject to taxes, but annuities are less susceptible to tax issues than other forms of inheritance. Annuity owners must name beneficiaries in the contract, and can make changes if needed. Primary and contingent beneficiaries are important to consider, and choosing wisely can avoid high taxes. Some choose to operate annuities in foreign countries for higher returns.
Annuities are a type of insurance plan that crosses over into the realm of investment. In the same way as with Social Security in the United States, they defer a planned amount of money into a fund that can be accessed at the owner’s discretion at any time after a particular age. In many cases, the income that feeds an annuity is funneled from an investment in the stock market, and the payments will be automatically released on a regular basis, chosen by the owner. An annuity beneficiary is someone who is named to inherit this amount if the owner must die before using it all. It’s kind of like a trust fund.
Annuity beneficiaries, like most other heirs, may be subject to tax in some cases. The good news is that annuities are much less susceptible to these problems than most other forms of inheritance because they are routed through an insurance company. Annuity owners must directly and clearly name one or more annuity beneficiaries in the annuity contract.
The insurance company and the type of contract will determine whether taxes will be imposed and how much will be deducted. Contracts need to be read and entered into carefully, and annuity owners have the right to demand changes to their contract. Annuity beneficiaries generally trump named heirs in a will, so the content of the annuity contract is vital. If an annuity owner wishes to change one or more of the beneficiaries listed in their contract, they will usually need to complete a form and submit it to the insurance agent in charge of the annuity, who will then make the change. Owners can also name more than one person as a beneficiary, and some annuity owners even choose multiple people.
A primary annuity beneficiary is the first in the inheritance process. Annuity owners may name one or more preferred heirs and specify what percentage each will receive. Contingent beneficiaries act as the second line of defense, a backup plan in case one or all of the primary beneficiaries die before they can accept the funds.
It is important to choose an annuity beneficiary wisely. People often decide to open an annuity before retirement because it can provide funds for a lifetime. If an annuity beneficiary decides to take their entire inheritance at once, or if the beneficiary is already wealthy, then they may be subject to higher taxes when they inherit, and much of the annuity money may end up going to the government.
Some annuity owners and annuity beneficiaries choose to operate in a foreign country where the annuities earn higher returns. Switzerland is a popular choice. The rest of the European Union and Australia tend to have slightly stricter laws than the United States, while Asia and South America vary from region to region.
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