Wealth Transfer and a Recent Private Letter Ruling

October 11, 2013

Considerations for wealth transfer should be included when planning retirement income strategies.

Considerations for wealth transfer should be included when planning retirement income strategies. Why? Because making sure your clients don’t run out of money in their lifetime implies there may be wealth left to transfer to heirs.

It is important to understand deferred annuity distribution options so that you can educate your clients and beneficiaries.

Nonqualified annuity distribution options for non-spousal, natural-person beneficiaries include the ability to:

  • Take a lump sum.
  • Deplete the account within five years of the owner's death.
  • Annuitize over a period no longer than the beneficiary's life expectancy.
  • Take distributions over the beneficiary's life expectancy (a.k.a., nonqualified stretch).

Not only does the nonqualified stretch option allow distributions to be taken over the beneficiary's life expectancy each year, this option also allows the undistributed annuity contract value to continue with tax-deferred growth.

Post-Death Transfers

It's a fairly simple process for a non-spousal beneficiary to request a trustee-to-trustee transfer from one inherited (stretch) IRA to another. However, due to lack of guidance from the IRS, it was assumed that non-spousal beneficiaries of nonqualified annuities were generally not permitted to move nonqualified annuity death proceeds directly to another annuity contract (i.e., 1035 exchange). Interestingly, a recent private letter ruling (PLR 201330016) issued to a beneficiary permitted a post-death exchange. The PLR states a beneficiary, of fixed and variable deferred annuities, may move death proceeds from multiple contracts (owned by the same deceased) into a new deferred variable annuity contract via a tax-free 1035 exchange. Distributions from the new contract will be taken at least as rapidly as under the old contracts. And, an ownership transfer option or new purchases into the new contract are not permitted.

It's important to remember that:

  • PLR 201330016 is directed only to the taxpayer who requested it. It may not be used or cited as precedent.
  • Certain unique factors not discussed here may have played a role in the ruling.
  • Not all annuity companies may process this transaction.

Currently, Pacific Life does not facilitate 1035 exchanges by beneficiaries. We are in the process of evaluating the PLR. We will keep you informed about our position in the near future.

Remember, wealth transfer is a part of retirement income planning. Be sure to include it in conversations with your clients.

For help with understanding beneficiary distribution options or more detail on PLR 201330016, contact the Pacific Life Retirement Strategies Group at (800) 722-2333 ,ext. 3939, or at RSG@PacificLife.com.



PLR 201330016 (IRS.gov)

Picture of Pacific Life Annuities

Pacific Life offers a broad and diversified range of products and solutions designed to help individuals and families achieve asset growth, sustainable retirement income, and long-term financial independence. We also help businesses manage and fulfill their long-term retirement plan commitments to employees.

Pacific Life, its distributors, and respective representatives do not provide tax, accounting, or legal advice. Any taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor or attorney.

Pacific Life is a product provider. It is not a fiduciary and therefore does not give advice or make recommendations regarding insurance or investment products.

Pacific Life refers to Pacific Life Insurance Company and its affiliates, including Pacific Life & Annuity Company. Insurance products are issued by Pacific Life Insurance Company in all states except New York and in New York by Pacific Life & Annuity Company. Product availability and features may vary by state. Each insurance company is solely responsible for the financial obligations accruing under the products it issues. 

Variable insurance products are distributed by Pacific Select Distributors, LLC (member FINRA & SIPC), a subsidiary of Pacific Life Insurance Company (Newport Beach, CA) and an affiliate of Pacific Life & Annuity Company. Variable and fixed annuity products are available through licensed third parties.

No bank guarantee • Not a deposit • Not FDIC/NCUA insured • May lose value • Not insured by any federal government agency