How Annuities Affect Wills

By John Cromwell

Estate planning is meant to ensure that the right people get the right assets as quickly as possible. Wills and annuities are both tools used in estate planning to achieve those goals. Generally, annuities have no effect on wills. It is important to remember that estate planning is subject to the probate code, which is defined by state law. If you are planning your estate or are trying to probate another’s estate as an executor, you may want to consider hiring a licensed attorney to help you with that process.

Definition of an Annuity

An annuity is a contract between two parties. One person transfers money, either in a lump sum or over time, to an organization. Generally this organization is an insurance company. In exchange for this payment, the insurance company promises to make periodic payments over a period of time to the person who paid the money or to a person he names as beneficiary. The payment can begin immediately or at some point in the future. Annuities are popular because the annuity can grow in value, but the tax on that increase is deferred until payments start being made.

Wills Explained

A will is a legal document prepared by a person before he dies which describes how he wants the assets in his probate estate to be distributed. For a will to be valid, it must be prepared in accordance with his state’s probate code. While the standards vary, generally the will must be written down by the person who is making the will, or the testator. The testator must be of legal age, which is normally 18, and of sound mind. This means he must understand the implications of making a will. The document must clearly state that it is a will. The testator must sign the will in the presence of two or three adult witnesses. The witnesses also sign the will.

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Probate and Estates

When a person dies, his property goes through a court-supervised process known as probate. The reviewing court will obtain the copy of the will, if one exists, and review it to ensure that it complies with state’s probate formalities. If it does, the court will then approve the will and appoint the executor to probate the estate. This requires the executor to collect all of the probate property of the estate, pay all of the decedent’s outstanding debts, and distribute what remains to the beneficiaries named in the will. Probate property is anything the decedent solely owned when he died that was not automatically transferred by contract or operation of law when she died.

Annuities and Wills

Generally annuities are not included in the probate estate. Annuity contracts are generally structured so that there are successor beneficiaries. So if the decedent was a beneficiary to an annuity, most times there will be a secondary beneficiary named in the contract who will automatically receive the annuity payments. Since an annuity is generally not included in the probate estate, it generally has no effect on the will.

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Dying Without a Will & the Beneficiaries of an Annuity


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