What Is a Beneficiary?
A beneficiary is the individual, trust, charity, or other entity named in your annuity contract to receive any remaining value when you die. Naming a beneficiary is one of the most important steps in setting up an annuity, because it determines how your assets are distributed without going through probate.
Primary vs. Contingent Beneficiaries
Most contracts allow you to name two tiers:
- Primary beneficiary: The first person in line to receive the death benefit. You can name multiple primary beneficiaries and specify what percentage each receives.
- Contingent beneficiary: A backup recipient who receives the benefit only if all primary beneficiaries have already died.
Naming at least one contingent beneficiary is good practice. Without one, the death benefit may pass to your estate if your primary beneficiary predeceases you.
Spousal Beneficiary Rules
Spouses often receive special treatment under annuity contracts and tax law. A surviving spouse named as beneficiary typically has the option to continue the contract in their own name rather than taking an immediate distribution. This is known as a spousal continuation provision and allows the funds to keep growing tax-deferred.
Non-Spouse Beneficiaries
Non-spouse beneficiaries generally must take distributions within a set period after the owner's death. The rules depend on when the contract was issued and whether the annuity is held inside or outside of a retirement account.
Keeping Designations Current
Beneficiary designations on annuities override instructions in your will. Reviewing them after major life events — marriage, divorce, birth of a child, death of a named beneficiary — ensures your intentions are reflected accurately.