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Some annuities pay out the full accumulated value upon the death of the annuitant, while others pay out the surrender value.  If an annuity pays out the surrender value upon death, the insurance company may offer a rider (for an additional fee) that waives the surrender charge at death. <ref>[http://www.immediateannuities.com/library_articles/taxation_of_nonqual_annuities.htm Non-Qualified Annuity Tax Rules]</ref>
 
Some annuities pay out the full accumulated value upon the death of the annuitant, while others pay out the surrender value.  If an annuity pays out the surrender value upon death, the insurance company may offer a rider (for an additional fee) that waives the surrender charge at death. <ref>[http://www.immediateannuities.com/library_articles/taxation_of_nonqual_annuities.htm Non-Qualified Annuity Tax Rules]</ref>
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The income over basis in a fixed annuity is considered [[Income in respect of a decedent | income in respect of a decedent]]. This means that the increase in value inside a deferred fixed annuity does not receive stepped up valuation upon the death of the contract owner. The beneficiary assumes both the decedent's basis in the annuity, as well as the same tax character of the income. Should a decedent's estate pay estate tax, the portion of the tax attributable to the estate's IRD is deductible as a miscellaneous itemized deduction (not subject to the 2% AGI exclusion) to the beneficiary receiving the IRD. The deduction is figured by computing the estate tax due on the entire estate and   then computing the estate tax due on the estate minus all IRD. The difference between the two provides the deductible amount. The deduction is realized on the IRD as the IRD is paid out to the beneficiary.
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The income over basis in a fixed annuity is considered [[Income in respect of a decedent | income in respect of a decedent]] (IRD). This means that the increase in value inside a deferred fixed annuity does not receive stepped up valuation upon the death of the contract owner. The beneficiary assumes both the decedent's basis in the annuity, as well as the same tax character of the income. Should a decedent's estate pay estate tax, the portion of the tax attributable to the estate's IRD is deductible as a miscellaneous itemized deduction (not subject to the 2% AGI exclusion) to the beneficiary receiving the IRD. The deduction is figured by computing the estate tax due on the entire estate and then computing the estate tax due on the estate minus all IRD. The difference between the two provides the deductible amount. The deduction is realized on the IRD as the IRD is paid out to the beneficiary.
    
The beneficiary's right to income after the death of the annuitant during the annuitization phase of a fixed annuity will depend on the annuitization option selected (single life, joint life, fixed term, or the selection of a guaranteed period or refund option).
 
The beneficiary's right to income after the death of the annuitant during the annuitization phase of a fixed annuity will depend on the annuitization option selected (single life, joint life, fixed term, or the selection of a guaranteed period or refund option).

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