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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16547
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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I have money in an Annuity and have my three children as beneficiaries.

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I have money in an Annuity and have my three children as beneficiaries. Will they need to pay income taxes on the proceeds or would that be capitol gains tax? Is there a better way to transfer these funds to my heirs so that they won't have to pay income taxes on it? I

MyVirtualCPA :

Thanks for asking your question! I'm sorry to hear about your tax issue and I'm going to try my best to help you understand or resolve it.

MyVirtualCPA :

How are you today?

MyVirtualCPA :

When you have an annuity, and it is inherited, you are taxed on the funds that you take out of the annuity, just like the annuity holder is taxed on distributions during their life

MyVirtualCPA :

If you take all the funds out of the annuity, and pay income tax on that and leave your children a lump sum of money they will not owe income tax on it

Customer:

I've heard of this thing called a step up in basis. So that the person inheriting gets the step up and doesn't need to pay the income taxes because there is no gain.

MyVirtualCPA :

That's not on an annuity - that's on a capital asset such as stocks or real estate

Customer:

do those assets need to be in a trust? If I take the money out of the annuity and by mutual funds and leave those mutual funds to my heirs does the step up apply?

MyVirtualCPA :

The assets do not need to be in a trust. If you do take funds out of the annuity, then yes - if they inherit a mutual fund there would be no tax

Customer:

that is good thanks. Does it matter which state the heirs live in?

MyVirtualCPA :

No, it does not

Customer:

Thanks, XXXXX XXXXX very helpful. Do you have an office in the MD DC area or know someone you would recommend?

MyVirtualCPA :

No, I do not. Our site cannot make direct referrals, but I can tell you that you can look at the Maryland State Board of Accountancy or the DC Board of accountancy to locate a professional in your area

Customer:

Perfect thanks

MyVirtualCPA :

You're welcome

MyVirtualCPA :

If you would, please rate my response as "excellent" so that I may receive credit for assisting you today

Customer:

I will , you were excellent

MyVirtualCPA :

Thanks. The rating feature is along the bottom of the screen

Customer:

Sorry it look like it wasn't enabled. Got it now.

Megan C and other Tax Specialists are ready to help you
Thanks, Neil for your positive rating. Please come back and visit MyVirtualCPA for any of your tax, finance, or social security needs. It was a pleasure working with you today.