Maximizing an Inherited Annuity


The Story

With an inheritance, it can often cause disputes within a family during a time that may already be difficult. Add in the complexities of inheritance tax, and it can be a recipe for disaster. When an advisor working two sisters knew this was a possibility, he contacted Palladium Group to help work through these complexities. Let’s take a closer look:

After a mother passed away mid-January of 2022, her two daughters were named as equal beneficiaries to her non-qualified annuity. The daughters were looking for guidance on what do with the inherited annuity.

The Challenges

Both daughters are financially secure, essentially meaning neither needed to take income from a financial perspective. However, their advisor and the team at Palladium Group wanted to ensure distribution rules on inherited accounts were being followed under the SECURE Act that went into effect on January 1, 2020. The main goals were to minimize the tax impact on the clients and keep the internal fees and expenses as low as possible on any new solution.

Client Profile(s)

  • 63-year-old female
  • 65-year-old female
  • Both daughters have more than $20M of liquid assets, outside of this inheritance
  • Looking to minimize immediate and future tax impact on clients
  • While comfortable with some volatility in the market, the daughters wanted downside protection


A number of options were discussed with the advisor and clients, including a low-cost variable annuity and indexed annuity options. It was imperative to everyone that the distributions were set up to satisfy the IRS guidelines within one year of the mother’s passing and the required minimum on an inherited annuity, per the SECURE Act.

The Solution

The clients decided they wanted some guardrails” on their investment and elected an indexed annuity, which allowed them to take part in the upside of the market — up to 10% — without taking part in the downside of the market (floor of 0%). Since they had 12 months from the date of their mother’s death to receive their first required distribution, we worked with their advisor to strategically complete the 1035 exchange in December and requested the first distribution for January of 2023. This allowed them to avoid any distribution in 2022.


Jeff Hess I RIA Consultant