518. Are there any exceptions to the rule that the entire interest in an inherited deferred annuity contract must be distributed within five years of the original owner’s death?Stevenrcline212015-04-28T20:31:00Z2015-04-28T20:31:00Z24422521Summit Business Media215295814Site Map/Annuities/Nonqualified/Death/Owner2005-01-19T00:00:00ZTaxFactsDefaultArticleEthics in Deferred Annuity Sales.pdfEthics in Deferred Annuity Sales.pdf10037-00-TF1.xml37.00;#1587;#0x010100C568DB52D9D0A14D9B2FDCC96666E9F2007948130EC3DB064584E219954237AF3900242457EFB8B24247815D688C526CD44D009C4E67E972694125ABDA91AC61F5E51FTax Facts 1What distributions are required when the owner of an annuity contract dies before the entire interest in the contract has been distributed?129255000.0000000000TaxFactsDefaultArticleSBMEDIA\moss-admin2010-01-14T23:14:21Z518. Are there any exceptions to the rule that the entire interest in an inherited deferred annuity contract must be distributed within five years of the original owner’s death?Installment payments made to a designated beneficiary. If any portion of the owner’s interest is to be distributed to a designated beneficiary (see definition in Q 518.01) over the life of such beneficiary (or over a period not extending beyond the life expectancy of the beneficiary) and such distributions begin within one year after the owner’s death, the five-year requirement does not apply..IRC Sec. 72(s)(2).Where the beneficiary is the surviving spouse of the annuity owner. If a designated beneficiary is the surviving spouse of the “holder of the contract” (the owner), that person may treat the annuity as his or her own (that is, as if he or she had owned it from inception) and continue the contract..IRC Sec. 72(s)(3). This “spousal continuation” option must be allowed in the annuity contract to be exercised. Some contracts require that the surviving spouse be the sole beneficiary to elect this “spousal continuation” option.Amounts distributed under these requirements are taxed under the general rules applicable to amounts distributed under annuity contracts. These rules are intended to prevent protracted deferral of tax on the gain in the contract through successive ownership of the contract.Where the owner of a contract issued after April 22, 1987 is a corporation or other non-natural person, the primary annuitant, as designated in the contract, will be treated as the owner of the contract for purposes of the distribution requirements of Section 72(s),.IRC Sec. 72(s)(6)(A). and a change in the primary annuitant of such a contract will be treated as the death of the owner..IRC Sec. 72(s)(7). Where the owner is a corporation or other non-natural person, see also Q 439.PLANNING POINT: Although most insurers will require payout within five years when the beneficiary of a deferred annuity is a trust, a few insurers will permit the trustee of such a trust to elect payout over the lifetime of the oldest trust beneficiary ,so long as all trust beneficiaries are natural persons (human beings). – John L. Olsen, CLU, ChFC, AEPThese requirements do not apply to annuities purchased to fund periodic payment of damages on account of personal injuries or sickness..IRC Sec. 72(s)(5)(D). Although these requirements do not apply with respect to qualified pension, profit sharing and stock bonus plans, IRC Section 403(b) tax sheltered annuities, and individual retirement annuities, similar distribution requirements do apply (Q 3638, Q 3806, Q 3954).