The Imperative Need for Correct Titling of Annuities

Investors seldom realize that retirement can be lot more tricky than managing the assets. You must understand the need to properly title the assets. Any incorrect title, particularly with regard to assets such as IRAs and annuities, can have adverse repercussions.

Please remember that most investments including IRAs and annuities have beneficiaries named regardless whatever you may mention in your will or living trust. Any asset that has a beneficiary named can not go to any other person.

For instance, let us take the case of a mutual fund. As you may be aware, mutual funds do not carry any named beneficiaries. Assuming you decide to shift a part of your assets from mutual funds to annuities to benefit your survivors – then what happens? Sample titling of the annuity can be best illustrated as below:

	Mutual Fund	Annuities
Account Title	Jointly owned by David and Mary Richardson in what is described as JTWROS (joint tenants with right of survivorship)	Joint ownership - David and Mary Richardson Annuitant: David Richardson Beneficiaries: Frank and Lucy Richardson
Event	David's death	David's death
Result	Mary, as joint owner, controls the assets in the mutual fund	As named beneficiaries, Frank and Lucy receive the annuity death benefit

The above chart is illustrative of most annuities – if not all.

The point to be noted is that any mistitling of annuities may mean a strange payout with its own tax consequences. From the above chart it can be seen that David and Mary are the joint owners of the annuity and when David expires, the annuity would in all probability go to the children, despite his spouse Mary being alive. This is simply because the death of any of the two owners results in a payout to the beneficiaries and the other owner stands deprived.

Things can get even more complicated with annuities if you choose to remarry. You may obviously want to share ownership of an asset with your second spouse but you may also want your children from your first marriage to inherit your share post your death. One solution could be you and your present spouse could be joint owners with your children (through your first marriage) named as the beneficiaries. As beneficiaries, your children will become entitled to the annuity benefit post your death.

This write-up is not to be misconstrued as offering professional tax-related or legal advice. This is merely an attempt at elucidating some of the laws and regulations currently in force regarding the title of annuities and how your funds eventually get distributed. Prospective investors are advised to seek the help of their legal or tax consultants for guidance regarding their particular annuities.