People create trusts for any number of reasons. Trusts can help pass assets on to the next generation after a death, conduct business activities or facilitate charitable giving. How you put an asset into a trust will change the type of treatment it receives. While annuities are contracts between an insurance company and a living person, ownership of the annuity can be put into a trust if it suits the needs and interests of the annuitant.
Assign Ownership to Trust
If you want to put an annuity that you already own into a trust, the simplest way is to assign the ownership of the annuity over to the trust. Annuities can have up to three different people involved in addition to the insurance company that offers the contract. The policy’s duration is limited to the life of the annuitant, who is often also the owner of the policy. The owner can specify a beneficiary to inherit any proceeds after the annuitant’s death. Depending on your intentions with putting the annuity in the trust, you might need to make the trust the beneficiary as well as the owner to avoid the appearance of ownership.
List the Trust as Owner
Trusts can serve as the owner of an annuity at the time of application as well. When taking out a new annuity, a natural person must serve as the annuitant. Because annuities can pay out over the life of the annuitant, if a trust were listed as the annuitant, the policy could pay out indefinitely. The trust can own the policy and be the listed beneficiary. You have the option of using your own funds to purchase the annuity, which is then owned by the trust, or putting funds in the trust that the trust uses to purchase the annuity against your life.
Grantor or Donor
When you establish a trust, you can retain the rights of ownership to property placed in it, or you can make the transfer permanent. A grantor trust is revocable because the grantor keeps control of the assets in the trust. The donor who establishes an irrevocable trust, on the other hand, cannot easily take possession of trust assets back. Tax law treats assets in revocable trusts as if they belonged to the grantor; assets in irrevocable trusts are treated as belonging only to the trust.
While annuities are designed as a payment contract that provides guaranteed payments over the life of the annuitant, many people use them as long-range investments. Your deposits grow according to the terms of the annuity until you tell the issuer to begin paying you back. If you die with a balance in an annuity, it can pass to your listed beneficiary without going through probate. Putting an annuity in a trust won’t override the beneficiary designation on the contract, so make sure the beneficiary designation is listed as you want it before assigning ownership to the trust.
Sean Butner has been writing news articles, blog entries and feature pieces since 2005. His articles have appeared on the cover of "The Richland Sandstorm" and "The Palimpsest Files." He is completing graduate coursework in accounting through Texas A&M University-Commerce. He currently advises families on their insurance and financial planning needs.