Annuities

This is a complicated area so the following information is general only. You should speak with a tax expert and a representative from the insurance company before you make any decisions regarding this inheritance.

The value of the annuity at the date of death is included in the estate for tax purposes. The estate would pay any inheritance tax.

Once an inherited annuity is distributed to the beneficiary by the insurance company, either a lump sum distribution or a new annuity with you as the owner, ordinary income taxwill become due on the growth of the annuity from the time the annuitant/decedent made the initial investment. Most annuities are tax deferred. When they are inherited, you inherit all the tax liability that was deferred over the years by the owner of the annuity.

You should discuss the inheritance with the insurance company. It can explain your options and ways you can minimize your tax obligations. Any changes you make or any distribution will generate a 1099-R.

The only person who can deal with the estate is the deceased's executor.

However, if the decedent arranged for an annuity to pass to a named beneficiary on death the proceeds pass directly to the beneficiary upon the death of the decedent. Those proceeds are not a probate asset and this are not part of the probate estate.

No. When the decedent arranged for an account to pass to a named beneficiary on death the proceeds pass directly to the beneficiary upon the death of the decedent. Those proceeds are not a probate asset and this are not part of the probate estate.

For computation of tax purposes, the proceeds are counted in the gross estate. However, most estates in the US do not reach the threshold for paying an estate tax.

In general, yes.

You see, while it's "less", it's really the same or more, depending on the exact figures per individual case - see an accountant in your area to be sure.

The reason why states like to pay a $20 million lottery at a rate of $1 million per year is because by the end they are paying you much less in "real" money. That is to say, inflation makes the value of the dollar less each year, and while taxes go up to reflect this, your lottery payment does not.

I charted one twenty year period where a fast food jobthat paid me $3.15 when I was 16 would pay $6.50 when I was in my mid thirties! Which basically tells you that the dollar dropped by a value of one half, as the job was certainly no harder.

You take those payments, and that million a year at the start will wind up being $750,000 after five to ten years, then $500,000 during the last few years. Neverminding the tax bites.

Take the lump sum, and the lump sum tax bite - though if you were smart, you incorporated and accepted the prize in the corporation's name leaving you tons of options for tax avoidance. Tax avoidance is legal, it's tax evasion that's a crime.

Check with a local accountant.