Estate Planning
November 30, 2023

Annuities and Estate Planning: 6 Helpful Tips

Stewart Willis

Annuity and estate planning concepts are complex, but these are strategies that financial experts would employ to help clients get the most out of the money they have. With the right private annuity and estate planning strategy in place, you can secure a stable financial future for your retirement and your loved ones.

Incorporating annuities into estate planning concepts can be a smart strategy to reduce expenses and tax liability. Here are some valuable tips to keep in mind.

1. Avoid Probate with Annuities

Annuities and estate planning actually work well together for one major reason: probate. You might be wondering if an annuity is part of an estate. The answer is simple: yes—an annuity can be included in an estate. However, whether it is included or not depends on the specific structure of the annuity and the beneficiary designations.

In most cases, if there is a designated beneficiary named for the annuity, the funds will be distributed directly to that beneficiary after the annuity owner's death. This means that the annuity proceeds would bypass any involvement with probate and go straight to the beneficiary.

An annuity with an estate as the beneficiary can be complicated. If the estate is named as the beneficiary, the value of the annuity will be included in the estate and distributed according to the instructions in a will. This could leave the annuity subject to a public probate process.

2. Surrender Your Annuity for a Lump Sum Payment

Once you're in the accumulation phase of your deferred annuity and no longer require it for retirement income, it might be worth contemplating surrendering it in exchange for a lump-sum payment. Keep in mind that this option is only accessible after the surrender period specified in your annuity contract has ended.

However, surrendering an annuity can result in charges and create a taxable event, particularly before age 59½. In such cases, an additional 10% penalty may apply. If you anticipate having higher retirement income (and the matching tax bracket) and you don't want added irrevocable income, then this could be an option for you.

3. Transfer Your Annuity Ownership to a Trust

When it comes to private annuities and estate planning, consider transferring your annuity to a trust as a strategic move. This can help you manage estate taxes and have control over how beneficiaries receive the funds.

By transferring it to a nongrantor irrevocable trust, you can remove its value and future growth from your taxable estate. However, do keep in mind that a deep understanding of annuity and estate planning concepts is necessary for this step.

4. Gift Annuity Payouts to Your Beneficiaries

You can maximize your wealth transfer while minimizing tax burdens with annuity and estate planning by gifting payments during the payout phase. By using the annual gift tax exclusion, you can make annual gifts to your heirs without impacting your lifetime estate tax exemption.

Figurine of an old couple next to a house with coins in the background

This strategic annuities and estate planning concept allows you to reduce the size of your taxable estate and pass on assets efficiently. Take control of your financial legacy and explore the benefits of annuities for estate planning and intergenerational wealth transfer.

5. Give Beneficiaries Guaranteed Income

Guaranteed recurring income payments with an annuity is a lot easier to manage than a lump sum payment for heirs. This is especially true if your beneficiaries are not as savvy with budgeting or managing money. Family members and loved ones might feel more secure knowing they have recurring income for a certain period. This annuities and estate planning concept gives you and your loved ones peace of mind and stability.

6. Explore Charitable Giving

When it comes to charitable giving, annuity payments can be a powerful tool. If you donate the annuity payouts, then it will exclude them from your estate. This can minimize your taxable income for the year if you itemize. You have two options with this annuity and estate planning concept:

  • donate the payments directly to a charity
  • use a donor-advised fund, which gives you more control

Consult with our Fiduciary Financial Advisors

Don't underestimate the importance of seeking professional guidance when it comes to annuities and estate planning. Financial advisors and estate planning attorneys are the experts who can provide valuable insights tailored to your unique financial situation and estate planning goals.

Our professionals can assess whether they align with your specific needs. Remember, individual circumstances play a significant role in determining the suitability of annuities for estate planning.

Get a free portfolio review today!

Any comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products. They do not refer in any way to securities or investment advisory products. Fixed insurance and annuity product guarantees are subject to the claims paying ability of the issuing company; not guaranteed by any bank or the FDIC.

Stewart Willis is the founder and president of Asset Preservation Wealth & Tax, a financial planning firm in Phoenix, Arizona. Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.

The commentary on this blog reflects the personal opinions, viewpoints and analyses of the author, Stewart Willis, providing such comments, and should not be regarded as a description of advisory services provided by Foundations Investment Advisors, LLC (“Foundations”), an SEC registered investment adviser or performance returns of any Foundations client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment, legal or tax advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Personal investment advice can only be rendered after the engagement of Foundations for services, execution of required documentation, including receipt of required disclosures. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Foundations manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Any statistical data or information obtained from or prepared by third party sources that Foundations deems reliable but in no way does Foundations guarantee the accuracy or completeness. Investments in securities involve the risk of loss. Any past performance is no guarantee of future results. Advisory services are only offered to clients or prospective clients where Foundations and its advisors are properly licensed or exempted. For more information, please go to and search by our firm name or by our CRD # 175083.

Ready To Get Started?

You spent all your working years accumulating this wealth. Now it’s the time to make the most of it.