487. Are the death benefits under a deferred annuity triggered upon the death of the owner of the annuity, or upon the death of the annuitant?Alexis Longrcline202015-04-28T20:11:00Z2015-04-28T20:11:00Z13642076Summit Business Media174243614487. Are the death benefits under a deferred annuity triggered upon the death of the owner of the annuity, or upon the death of the annuitant?Whether death benefits (in particular, certain guaranteed death benefits that may increase the contract value for beneficiaries) are triggered upon the death of the owner of an annuity or the annuitant depends upon the terms of the annuity contract. Annuity contracts can provide that death benefits are triggered upon the death of the annuitant (“annuitant-driven contracts”), upon the death of the owner (“owner-driven contracts”) or can provide that death benefits will be paid upon the death of the annuitant or the owner. Notably, all deferred annuity contracts issued after January 18, 1985, in order to qualify for the tax benefits granted to an annuity.IRC Sec. 72(s)(1)(B)., must specify that if the “holder” of a deferred annuity contract dies before the contract enters payout status, the entire interest must be distributed within five years of the holder’s death. Typically, the “holder” of the annuity contract is the owner of that contract, though if the annuity owner is a non-natural person (such as a trust or a corporation), the holder of the contract is the primary annuitant under the contract..IRC Sec. 72(s)(6)(A). Given this dynamic, the annuity may be required to pay out at the death of an owner for tax purposes (an “owner-driven” rule) even though the guaranteed death benefit may separately trigger based on the death of the owner or the annuitant. In cases where the owner and annuitant are not the same person, some death benefit (usually, the contract value) must become payable upon the death of the owner, and the annuitant’s death may trigger an “enhanced” or guaranteed minimum death benefit (but only if the death benefit is annuitant-driven). In such scenarios, if the owner dies first, the contract value (but not the guaranteed/enhanced death benefit) of the annuity is paid out. In situations where the owner and annuitant are the same individual, this distinction is moot.PLANNING POINT: When the annuitant and owner are two different parties (the annuitant must be a human being, but the owner need not be), problems can result. As a general rule, advisors should recommend that the owner and annuitant be the same party. Where this is not desired (for whatever reason), the consequences of naming separate parties must be fully understood and accepted. – John L. Olsen, CLU, ChFC, AEP).