Why Annuities May Not Be Ideal for Wealth Transfer

Shawn Plummer

CEO, The Annuity Expert

Understanding Annuities in Wealth Transfer

Annuities can be complex financial instruments when used for wealth transfer. While some annuities, particularly those with enhanced death benefits, offer advantages, there are key reasons why they may not always be the best choice.

Limited Death Benefit Options

Traditional annuities, especially annuitized contracts or Single Premium Immediate Annuities (SPIAs), often provide beneficiaries with a series of payments rather than a lump sum. This can be less flexible and may not align with the beneficiaries’ financial needs or goals.

Tax Implications

Beneficiaries of annuity payments are typically subject to ordinary income taxes on the distributions they receive. This can result in a significant tax burden, especially if the annuity payments are large.

Enhanced Death Benefits

Some annuities offer enhanced death benefits, which can increase the death benefit to help offset the tax liabilities for beneficiaries. However, these enhanced benefits can come with additional costs and may not fully compensate for the tax burden.

Options for Surviving Spouses

Surviving spouses might have the option to continue the annuity contract, deferring the tax liabilities. While this can be advantageous in delaying tax payments, it may not be suitable for all situations, especially if immediate access to funds is required.

Comparison to Other Estate Planning Tools

When compared to other estate planning tools like trusts or life insurance, annuities may offer less favorable tax treatment and flexibility. Life insurance, for example, typically provides a tax-free lump sum death benefit, which can be more beneficial for wealth transfer.


While annuities, especially those with enhanced death benefits, can play a role in wealth transfer, they often come with limitations in terms of flexibility and tax efficiency. It’s essential to consider the specific financial needs and goals of both the annuitant and the beneficiaries before choosing an annuity for wealth transfer. Contact us today for a free quote.

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Shawn Plummer

CEO, The Annuity Expert

Shawn Plummer is a licensed financial professional, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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