How can money in an annuity be divided among 8 children when only two

[Guest ksadler]

The annuitant recently passed away with $300,000 in an annuity. She originally assigned only 2 beneficiaries to the contract with the mindset that these 2 children would divide up the annuity amongst the 8 children. Other facts are: The Annuitant lived in Louisiana, one beneficiary also lives in Louisiana, the other beneficiary lives in Georgia, and the remaining children lived throughout the United States and Canada.

1) Now that she has passed away, how can this be divided?

2) What are the tax ramifications of dividing this? Federal and state? Beneficiary and/or children?

3) Can the beneficiaries be "reassigned" according to the will? (The will is very generic and basically states that the estate is to be divided equally among the children.)

4) What are some other methods that can be used to divide up this annuity?

The bottom line question is “What should they do?”

[Carol V. Calhoun]

It may depend on which "they" we are talking about--the beneficiaries, the other children, or the plan's fiduciaries. Also, in general, a "mindset" is not legally binding, so a lot may depend on whether the beneficiaries want to accommodate the rest of the children. (Another lesson in why people should engage in estate planning...)

If this is an ERISA plan, ERISA would preempt state law on wills, trusts, and pretty much everything else aside from the annuity contract itself. Thus, in the absence of a disclaimer, the plan would pay to the two beneficiaries who were named. It would then be up to them to share the money with the other beneficiaries, if they wanted to or were forced by a court to, but it would not be the plan's problem.

If the plan is an ERISA plan, and the two beneficiaries disclaim their interests, you would have to look at the plan terms and/or the terms of the annuity contract to see who would take in the absence of a beneficiary. State law would still not apply to the plan.

If the plan is a non-ERISA plan (governmental or church plan, or salary-reduction-only plan which meets DOL requirements for not being subject to ERISA), then state law could theoretically apply. However, although I have not examined the particular state laws here, state probate law is seldom applicable to insurance contracts which pay directly to a beneficiary anyway. Thus, you would probably still be looking at the contract terms.

Of course, if the beneficiaries receive the money, and then pass it on to others, the beneficiaries would be taxable on the distributions. Presumably, this would be taken into account in figuring out the share of each beneficiary.

[Mary Kay Foss]

The previous answer is terrific but I had one additional thought. If the named beneficiaries disclaim and no contingent beneficiary is listed, the annuity may revert to the estate. That may allow for the distribution that you're looking for but here in California it would make the annuity a probate asset. Income tax ramifications should also be considered when looking into disclaimers.