IM-26 March 15, 2012; IM-106 November 8, 2007; IM-95 August 26, 2005; IM-73 December 12, 1995
For irrevocable, life annuities (in which the claimant or spouse is the owner and one of them is annuitant and receiving the payments), there is no transfer penalty if:
- the annuity is paid over the life of the annuitant; AND
- the regular payments from the annuity will exhaust the annuity over the life expectancy of the annuitant
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: Mr. P, age 75, bought an immediate life annuity in October 2004 for $35,000, with monthly payments of $350. His life expectancy at the time of purchase was 9.99 years. The expected total payout is 9.99 years X 12 payments per year X $350 per payment = $41,958. His policy is actuarially sound, provides for equal or nearly equal payments for the duration of the annuity, and excludes balloon-style final payments, so there is no transfer penalty.
If the annuity is paid over the life of the annuitant but the regular payments from the annuity will not exhaust the annuity over the annuitant’s life expectancy, then there is a partial transfer of the premium. Determine the amount of the transfer according to the following formula:
Transfer amount equals the premium minus total payout.
EXAMPLE: Mr. C, age 82, bought an immediate life annuity in December 2004 for $70,000 which will pay $400 monthly. His life expectancy at the time of purchase was 6.52 years. The expected total payout is $31,296. (6.52 years X 12 payments per year X $400 per month), which is less than the premium. The transfer is $70,000 – $31,296 = $38,704.