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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 Driven

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 Driven

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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3 Comments

  • John Olsen says:

    Good article, but it overlooks the fact that ALL deferred annuities issued since 1/1885 are "owner driven", because Sect. 72(s) of the Internal Revenue Code requires same. SOME deferred annuities are ALSO "annuiitant-driven".

    Also, while it's generally true that, upon the death of a non-annuitant owner, the proceeds will pass to the same beneficiary as if the annuitant had died, this is not always true. In one Index Annuity contract, the death of a non-annuitant owner passes the contract value to the joint owner, if any, otherwise the contingent owner, if any, otherwise the ESTATE OF THE OWNER! Another contract allows the owner and annuitant to each name a beneficiary. See my article entitled "Who gets the money in my deferred annuity if I die?", here on annuity123.com.

  • John, Thanks for commenting on my article. I wrote the article in general terms. The point of the article was to inform annuity owners of the fact they should consult annuity professional like us for a review of their contracts. Also, any person considering the purchase of an annuity should be made aware of the importance of proper setup of the positions inside a contract. Thanks again.

  • R. Gregg says:

    Hello, I’m the personal representative of my cousin’s estate who died intestate. Among her assets she has an annuity with great American insurance called legend America III which she opened in feb 2015. I have been told ther is a beneficiary but the financial company will note disclose the name. My attorney has gone to court to obtain information. The only statement I have is a year old and states the my cousin and the name of her financial adviser’s company are stated as co-owners. My cousin is named as the annuitant. Will I be allowed to know the beneficiary and could that also be the financial advisement company? Or will the estate eventually be the beneficiary. The cousin had no will and no beneficiaries on any other investments. Thanks for any thoughts.

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