May 1, 2007 12:00 PM, Bruce A. Tannahill, vice president, business and estate planning, Western Reserve Life Assurance Co.

By: Bruce A. Tannahill, vice president, business and estate planning, Western Reserve Life Assurance Co.

Do you know how many of your clients own non-qualified deferred annuities?¹ Does their estate planning consider how those annuities are subject to different tax and non-tax rules than other assets? These differences create both planning opportunities and traps. Because annuities are subject to both income and estate tax, a significant amount of their value can be lost at the owner's death. Fortunately, lifetime and post-mortem estate planning can minimize the impact of this double taxation.

Deferred annuities often resemble investments in bonds or mutual funds and may be purchased instead of, or in addition to them. But what clients and their advisors frequently don't consider is that deferred annuities have very different tax treatment from bonds or mutual funds, both during the clients' lifetimes and when they die. Also, a beneficiary designation, rather than estate-planning documents, normally controls who receives the annuity's value at the owner's death.

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