A common question when planning for wealth transfer is whether gifting a variable annuity to your children will trigger taxes. Here’s what you should know to navigate this process in 2025.
Gift Taxes
If you’re considering gifting a variable annuity, the good news is that gift taxes typically won’t apply unless the current value of the annuity exceeds the lifetime gift-tax exclusion, which is now $12.92 million per individual in 2025. This threshold means most people can gift their annuities without worrying about gift taxes.
Income Taxes on Gains
However, there’s a potential tax issue you can’t overlook: the gains on the annuity. If your annuity has appreciated significantly, the gains are subject to income taxes when the funds are distributed.
If you decide to withdraw the full value of the annuity to gift it to your children, you could face a steep income tax bill. Instead, consider these strategies:
Designate Beneficiaries: Make your children the beneficiaries of your annuity’s death benefits. After your passing, they will inherit the annuity and pay income taxes on their portions of the gains.
Gradual Withdrawals: If you want to give them the money now, you could withdraw funds in smaller increments over time. This spreads out the tax burden and allows you to gift the cash to your children without a large one-time tax hit.
Each situation is unique, so it’s essential to consult with a tax advisor or financial professional to develop a strategy tailored to your needs.
For more information about how variable annuities can fit into your wealth transfer plans, contact us here at AnnuityFYI.
Written by Rachel Summit
