I'm assuming you are his tax advisor - you should be talking
the mother's financial advisor regarding the annuity and his
rights. His rights can vary greatly between a variable or
fixed annuity. Are you sure he has the right to the
remaining balance, and if so does he have the right to a
lump sum distribution? The Annuity company can answer all
these questions - and you should talk to them VERY SOON
because some companies are very restrictive in their rules
regarding a beneficiary or survivor.

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >

"shagnasty" <shag[at]nospam.com> wrote:

- quote -

Depends, if it is an IRA or other qualified funds then it
may be all taxable. If it is non-qualified funds he will get
a 1099 that will show the taxable amount. A portion will be
principle and a portion will be earnings, the annuity
company should calculate this. Annuities are not capital
assets and you can not take a capital gain or loss on them.
You can take a loss as a misc. itemized deduction subject to
the 2% floor if you meet certain requirements.

H

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >

Situation: The mother dies. She has an annuity from which
she collected a monthly income. Her son inherits the
annuity. He wants to take the whole balance of the annuity
all at once rather than collect it monthly. There seems to
be no tax advantage in stringing it out since he is in the
maximum tax bracket and expects to remain in that bracket
for years to come.

QUESTION: Would there be any tax on the annuity to anyone
(her estate is not big enough for estate tax)?

If the amount he received was LESS than the original cost of
the annuity, would that make it a return of principal, not
an income?

If he got MORE than the original cost, would the taxable
amount be the amount received minus the original cost?

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >