A fixed annuity is a special type of insurance policy that provides a regular stream of income either for a specified period of time or for the life of the policyholder. This quality makes annuities a common option for retirement planning. In some cases an annuity can be included in the policyholder's estate and inherited by his heirs. Tax consequences and other lifestyle considerations might make an inherited fixed annuity less advantageous than having the lump sum value of annuity policy. You may be able to cash in your inherited fixed annuity in the secondary market.
Determine whether your inherited fixed annuity is eligible for sale or transfer in the secondary market. Many types of annuities are transferable, but some are not. This process can be complex and may require you to consult with a finance professional or legal counselor, such as an attorney. Some states, including Alaska, Delaware, Ohio, Louisiana, North Carolina, Maine, Minnesota and Maryland, may require individuals who are considering the transfer of certain types of structured settlements to obtain the advice of an actuary, a certified public accountant, an attorney or other licensed professional financial adviser, according the Annuity Transfers website.
Run the Numbers
Though you may know how much your regular monthly annuity payment amounts are, you may not know the total value of the policy. Before you decide to sell your inherited fixed annuity, have your actuary or financial adviser run the numbers on the policy to determine its total value if it were fully paid out. This will provide you with a benchmark to measure any offers you may receive in the secondary market.
There is a strong secondary market for annuities and other forms of structured settlements, and there are a number of companies that may offer to purchase your inherited fixed annuity. It is always advisable to get several quotes from different companies to ensure you get the best price for your inherited fixed annuity. Keep in mind that the purchasing company is in business to make a profit. If it makes an offer for your annuity, it will typically involve a discount from the total value of the annuity if paid out in its entirety. Once you decide to sell your inherited fixed annuity, the process can typically be completed within a few weeks, according to the JG Wentworth website. Each individual's situation is unique, so the timetable for receiving your funds may vary.
The lump-sum amount you receive in exchange for your inherited fixed annuity will likely be subject to income taxation at both the federal and state level. The amount you receive will be less than the annuity's total payout if left to maturity. Even with the reduced lump-sum amount, you may be about to increase the total value of your inheritance by investing the lump-sum payout in an investment that offers a higher rate of return.
- Comstock Images/Comstock/Getty Images