560 / Are the death benefits under a deferred annuity triggered upon the death of the owner of the annuity, or upon the death of the annuitant?

However, all deferred annuity contracts issued since January 18, 1985,¹ must specify that if any “holder” of a deferred annuity contract dies before the contract enters payout status, the entire interest must be distributed within five years of the holder’s death. Thus, all such contracts are “owner-driven” while only some are also “annuitant-driven”. Typically, the “holder” of the annuity contract is the owner of that contract, though if the annuity owner is a non-natural person (such as a trust or a corporation), the holder of the contract is the primary annuitant under the contract.² See Q 565.

In practical terms, this means that if a deferred annuity contract is “annuitant-driven” and provides for a guaranteed minimum death benefit in excess of the contract’s cash value and if the owner and annuitant are not the same person, the cash value will be paid out if the owner dies first (ending the contract) and the guaranteed minimum death benefit will be paid out if the annuitant dies first. If a contract is not “annuitant-driven”, the death benefit will be paid out only upon the death of the first owner (“holder”). In that situation, if the annuitant dies first, the owner may generally name a new annuitant. If the owner and annuitant are the same person (the annuitant must be a human being), this question is moot.