IM-26 March 15, 2012; IM-106 November 8, 2007; IM-95 August 26, 2005; IM-73 December 20, 1995
For irrevocable, period certain annuities (in which claimant or spouse is the owner and one of them is the annuitant and receiving the payments), there is no transfer penalty if:
- the annuity is paid over a period certain
- the life expectancy of the annuitant when the payments begin is greater than or equal to the length of the period certain; AND
- the regular payments from the annuity will exhaust the annuity at the end of the period certain
For annuities on which the annuitant began receiving periodic monthly payments prior to August 28, 2005, a transfer of property penalty would only be imposed if the annuity:
- is not actuarially sound as measured against the Social Security Administration life expectancy tables based on the life of the annuitant; OR
- does not provide for equal or nearly equal payments for the duration of the annuity and includes “balloon” style final payments
EXAMPLE: In June 2005, Mr. M bought an annuity for $30,000 over a 10 year period certain. It pays him $290 per month. He was age 62 when he bought the annuity. The total payout will be 120 X $290 = $34,800. His life expectancy at the time of purchase is 18.5 years, which is greater than 10 years. Therefore, there is no transfer penalty, since he is expected to receive full value from the policy.
If the regular payments from the annuity will exhaust the annuity at the end of the period certain, but the annuitant’s life expectancy when payments begin is less than the period certain, then there is a partial transfer of the premium. Determine the amount of the transfer based on the following formula:
- subtract the life expectancy from the period certain
- multiply times the purchase price
- divide by the period certain
EXAMPLE: In July 2005, Mr. C purchased an immediate annuity of $30,000 for a 10 year period certain. His age at the time of purchase was 95. His life expectancy is 2.59 years, which is less than 10 years. Therefore, a portion of the premium will be considered a transfer of property. The transferred amount is: (10 – 2.59) X 30,000 / 10 = 7.41 X 30,000 / 10 = $22,230.