Annuity Contract Education: Owner Driven vs. Annuitant Driven
Written By: Lyndol Anderson in Abilene, TX
For persons interested in setting up an annuity, knowledge of the difference between an owner driven contract and an annuitant driven contract is very important. It is sometimes very hard to distinguish but the differences between the two can have an undesired effect upon control of the contract and the distribution of the account value.
The core discrepancy between the two styles of annuity contracts comes into play when there is a death of the owner and/or annuitant.
- In an owner driven contract, the passing of the owner causes the account value to be distributed to the beneficiary(s).
- In an annuitant driven contract, the passing of the annuitant causes the account value to be distributed to the beneficiary(s).
The above results of an individual’s passing appear to be the same, but incorrect planning for the three positions of an annuity contract may lead to an undesirable result of the annuity payout. Let us take a look at a several common situations.
Owner and annuitant is the same person:
Owner passes. Account values move to beneficiary(s). This is a simple format for an owner driven contract. However, if there is more than one owner listed on the contract, the contract payout becomes a little more complicated. The most common scenario is husband and wife as joint owners. Here the annuity contract language controls what options are available.
Owner and annuitant are different persons:
Owner passes. Account value passes to the beneficiary(s). Notice the annuitant does not automatically become the new owner of the contract. In fact, they do not have any interest in the contract unless they are named as beneficiary.
Annuitant and owner is the same person:
Annuitant passes. Account value passes to the named beneficiary(s). Again this is a simple, common arrangement as mentioned above.
Annuitant and owner are different persons:
Annuitant passes away. Account value flows to the named beneficiary(s). Here is when it can get a little complicated and can have an undesirable, unplanned result. Consider this common arrangement:
- Husband is the sole annuitant.
- Husband is
the owner or husband and wife are co-owners.
- Children are listed as beneficiaries.
The husband and wife both want the account value to go to the wife if husband passes first. However, in an annuitant driven contract, at the passing of the husband, money streams to the beneficiaries, not his wife. The owner does not inherit the value of the contract. If the children then try and return the money to Mom, many different income tax issues can come into play, causing additional problems.
This is an example of where a professional maintenance review of the contract would have caught this undesirable/incorrect setup. This situation is easily repaired before Dad passes, but is not so easy to correct after the fact.
So for all owners of existing contracts, making sure the people named in an existing contract are in the correct named position is a major maintenance point. When considering the setup for a new annuity, attention needs to be paid to the style of the annuity contract being considered.
About the Author. Lyndol Anderson is the Founder and president of West Texas Senior Solutions. He has been working with annuities for over eighteen years. WTSS has solutions for surviving retirement-financially. Be sure to visit www.peacefulretirement.com for more details about Lyndol’s practice and to receive further educational information. If you have any questions about the information presented in this article or concerns about your existing contract, please contact him at 888-216-0019.
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