Complex Annuity/Estate Situation - Advice Needed

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Complex Annuity/Estate Situation - Advice Needed

Post by boglesmkcents »

I are in need of some advice on a complicated question regarding an inherited annuity. Facts as follows:

My wife's aunt passed away in 2022. She has an annuity that was in the early distribution phase, and had a clause regarding certain payments to continue for some time to two beneficiaries upon her death. One of those beneficiaries was my wife's mother. My wife's mother then passed away several weeks later, also in 2022. No contingent beneficiaries were named in the annuity.

Meanwhile, my wife's mother's assets all passed through to my wife and her brother through a trust or via POD/beneficiary designations, so my wife, who is the trustee of her mom's trust, and executor for her mom's estate, only got a TIN for the trust, as there was no separate estate to speak of.

Now, the insurance company for her aunt's annuity is saying that to distribute the annuity to my wife and her brother, they need a separate TIN for my wife's mom's estate, since her aunt's annuity did not name the trust as a beneficiary. This would mean getting a separate TIN, plus a letter of testamentary from the courts and then filing an additional tax return.

Is the best/only way to handle this to get the added TIN, then the letter of testamentary, and then file additional taxes for a lump sum payment (just to get this wrapped up)? Is there a better/easier way to keep this simple and to not cause complexity dealing with the IRS and FTB (we live in CA)? Also, if the money does flow to a newly created estate for my wife's mother, does that mean that she also needs to file a 1041 tax return for that estate for 2024 (assuming a lump sum distribution is taken) and that the taxes can be paid there rather than passed on to my wife and her brother?

I hope this is clear -- I tried to keep it as simple as I can, and any thoughts/suggestions are much appreciated. Please let me know if any clarifications from me would be helpful.
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Re: Complex Annuity/Estate Situation - Advice Needed

Post by tetrad »

I think this is a question for an estate attorney. I will tell you what I think, but this is a guess. Basically I think your correct, you have to open the estate and send it through the estate and do all that paper work. Where I differ from you is that it will probably be tax-wise better for the trust to pass on the income to the beneficiaries so that your wife and her brother pay the taxes. Typically individual taxes are less then trust and estate taxes, but this would have to be verified in this specific situation. The executor probably has discretion to elect which method is used, pass-through or not. So yes probably From 1041, then passing the income through and giving the beneficiaries the appropriate K-1s, and whatever the CA equivalent is.
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Re: Complex Annuity/Estate Situation - Advice Needed

Post by SuzBanyan »

Is the annuity value small enough that it can pass using the CA small estate affidavit? Depending on when your mother in law passed in 2022 , that would be $166,250 or $188,450. We were able to use this to transfer the proceeds of a small life insurance policy after my mother died when the only named beneficiary predeceased my mother.
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Re: Complex Annuity/Estate Situation - Advice Needed

Post by bsteiner »

It’s the other way around. You first get an executor appointed. Then the executor gets or has his/her lawyer assign a number.

If it’s too difficult to probate the Will in California perhaps you can probate it where the insurance company is located.
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