Can You Transfer an Annuity to Another Person?

Life circumstances change. Maybe you're going through a divorce, restructuring your estate plan, or simply want to give an annuity to a family member. Whatever your reason, the question is straightforward: can you transfer an annuity to another person?

The short answer is yes — but the process is not as simple as signing over a check. Annuity transfers involve insurance company rules, IRS regulations, and potential tax consequences that can significantly affect both you and the person receiving the contract. Making the wrong move could cost you thousands in unexpected taxes.

This guide walks you through the types of annuity transfers, the tax implications of each, a step-by-step process for executing a transfer, and the situations where transferring might not be your best option.

Understanding Annuity Ownership

Before diving into transfers, it helps to understand how annuity ownership works. Every annuity contract has several parties:

• Owner: The person who controls the contract. You decide when to make withdrawals, who the beneficiary is, and how the annuity is managed.
• Annuitant: The person whose life expectancy is used to calculate payments during annuitization. This is often the same person as the owner, but not always.
• Beneficiary: The person who receives the death benefit if the annuitant passes away.

When you transfer an annuity to another person, you're changing the owner of the contract. The annuitant and beneficiary may or may not change depending on the type of transfer and the insurance company's rules. Some insurers allow full flexibility in changing these roles, while others have restrictions.

Types of Annuity Transfers

There are several ways to transfer an annuity, each with different rules and tax consequences.

1. Direct Ownership Transfer (Assignment)

A direct ownership transfer — also called an assignment — changes who owns the annuity contract. The new owner takes over all rights to the contract, including the ability to make withdrawals, change beneficiaries, and make decisions about annuitization.

Tax consequence: When you transfer ownership of an annuity to a non-spouse, the IRS treats the transfer as a taxable event under IRC Section 72(e)(4)(C). You, as the original owner, owe ordinary income tax on the gain in the contract — the difference between the accumulated value and your cost basis (total premiums paid).

For example, if you paid $80,000 in premiums and the annuity is now worth $130,000, you'd owe income taxes on the $50,000 gain in the year of the transfer. The new owner would then receive a cost basis equal to the contract's value at the time of transfer ($130,000).

This tax hit makes non-spouse assignments expensive. It's one of the most important factors to consider before proceeding.

2. Spousal Transfers

Transfers between spouses receive preferential tax treatment under IRS rules. If you transfer an annuity to your spouse — or to a former spouse as part of a divorce decree — the transfer is not a taxable event. The receiving spouse takes over the contract with the original cost basis, and taxes are deferred until they eventually take distributions.

This makes spousal transfers one of the most tax-efficient ways to move an annuity between people. It's commonly used in:

• Divorce settlements: Annuities are often split or transferred as part of property division.
• Estate planning: Transferring an annuity to a spouse before death can simplify the inheritance process.

Important: The tax-free treatment applies only to transfers between spouses or incident to divorce under IRC Section 1041. Transfers to domestic partners who are not legally married may not qualify, depending on state and federal rules.

3. 1035 Exchange

A 1035 exchange is technically not a transfer to another person — it's a transfer of your annuity's value into a new annuity contract. However, it's relevant here because many people explore 1035 exchanges as an alternative to a direct transfer.

Under a 1035 exchange, you move the full value of your existing annuity into a new contract with a different insurance company, without triggering any taxes. Your cost basis carries over to the new contract.

A 1035 exchange is useful when:

• Your current annuity has high fees, poor performance, or limited features.
• You want access to a newer product with better rates or riders.
• Your annuity has reached its maturity date and you want to continue deferring taxes.

Key rule: In a 1035 exchange, the owner and annuitant must remain the same on the new contract. You cannot use a 1035 exchange to change ownership to another person.

4. Beneficiary Designation (Transfer at Death)

Rather than transferring your annuity during your lifetime, you can name a beneficiary who will receive the contract's value upon your death. This avoids the taxable event that comes with a lifetime transfer to a non-spouse, though your beneficiary will owe income taxes on the gains when they receive the death benefit.

A spousal beneficiary has additional options — they can typically continue the contract in their own name, maintaining tax deferral. Non-spouse beneficiaries generally must take distributions within a set timeframe, often five years or based on their life expectancy.

Step-by-Step: How to Transfer an Annuity

If you've decided a transfer is the right move, here's how to execute it properly.

Step 1: Review Your Contract

Start by reading your annuity contract carefully. Look for provisions related to assignment or change of ownership. Some contracts restrict or prohibit ownership changes. Also check for any surrender charges that might apply — if your contract is still within the surrender period, you could face penalties.

Step 2: Contact Your Insurance Company

Call the insurance company that issued your annuity and request their ownership change forms. Ask specifically about:

• Whether the contract allows ownership changes.
• Any fees or administrative requirements.
• Whether the annuitant must remain the same or can be changed.
• How the transfer affects existing riders or guarantees.

Step 3: Consult a Tax Professional

Before completing any paperwork, speak with a tax advisor. They can calculate the exact tax impact of the transfer based on your cost basis, current contract value, and tax bracket. This step is critical for non-spouse transfers where taxes will be triggered.

Step 4: Complete and Submit the Paperwork

Fill out the insurance company's ownership change forms. Both the current owner and the new owner typically need to sign. Some insurers may require notarization or additional documentation.

Step 5: Confirm the Transfer

After submitting the paperwork, follow up with the insurance company to confirm the transfer has been processed. Request a written confirmation showing the new owner's name and the effective date of the change.

If you need assistance navigating this process, contact our team for personalized support.

When Transferring an Annuity Makes Sense

Annuity transfers are appropriate in several common situations:

Divorce: When an annuity is marital property, transferring it to the other spouse as part of the settlement is tax-free and clean. Courts frequently include annuities in property division orders.

Estate planning simplification: If you want to reduce the complexity of your estate, transferring an annuity to a spouse or placing it in a trust can streamline distributions after your death. However, trust ownership has its own rules — trusts that are not "natural persons" may lose the benefit of tax deferral.

Gifting to family: If you want to give an annuity to a child or other family member, a transfer is possible — but the tax cost is real. In many cases, it's more efficient to name them as a beneficiary and let the transfer happen at death.

When Transferring an Annuity Does Not Make Sense

There are situations where a transfer is the wrong move:

When the tax cost exceeds the benefit. If your annuity has substantial gains, transferring it to a non-spouse means you'll owe income taxes on all those gains immediately. Run the numbers before committing.

When you're still within the surrender period. Surrender charges can range from 5% to 10% or more in the early years of a contract. Adding a surrender charge on top of a tax bill makes the transfer very expensive.

When you simply want to change investments. If your goal is to move into a better-performing annuity, a 1035 exchange accomplishes this without changing ownership and without triggering taxes. It's almost always the better option if you're keeping the annuity for yourself.

When the recipient doesn't need or want an annuity. Annuities are long-term, illiquid instruments. If the person you're transferring to would prefer liquid assets, it might be better to surrender the annuity, pay the taxes, and give them the cash.

Tax Summary: Transfer Types at a Glance

Understanding the tax treatment of each transfer type saves you from surprises:

• Non-spouse assignment: Gains taxed as ordinary income to the original owner in the year of transfer.
• Spousal transfer: No tax event. Cost basis carries over.
• Divorce-related transfer: No tax event when done pursuant to a divorce decree under IRC Section 1041.
• 1035 exchange: No tax event. Cost basis carries over to the new contract. Ownership stays the same.
• Death benefit to beneficiary: Gains taxed as ordinary income to the beneficiary when distributed.

Annuity Transfers and Qualified vs. Non-Qualified Contracts

The rules above apply primarily to non-qualified annuities — those purchased with after-tax dollars outside of a retirement account. If your annuity is a qualified annuity (held within an IRA, 401(k), or other tax-advantaged account), the transfer rules are different.

Qualified annuity transfers are governed by the rules of the retirement account that holds them. For example, transferring an IRA annuity to another person is generally not allowed except through a spousal rollover after the owner's death or as part of a divorce under a Qualified Domestic Relations Order (QDRO).

If your annuity is inside a qualified account, consult with your financial advisor to understand the specific transfer rules that apply to your situation.

How a Transfer Affects Your Annuity's Guarantees

Many modern annuities come with optional riders — guaranteed minimum income benefits, death benefit riders, or long-term care riders. When you transfer ownership, some of these guarantees may be affected or voided.

Insurance companies set the terms of these riders, and a change of ownership can trigger a re-evaluation. In some cases, a rider that was based on the original owner's age or health profile may not carry over to the new owner on the same terms. Always ask your insurer specifically how a transfer will impact any riders attached to the contract.

Final Thoughts

Transferring an annuity to another person is possible, but it requires careful planning. Spousal transfers and divorce-related assignments offer the most favorable tax treatment. Non-spouse transfers trigger taxes on gains and should only be done when the benefits clearly outweigh the costs.

Before making any transfer, review your contract terms, calculate the tax impact with a professional, and consider whether alternative strategies — like a 1035 exchange or beneficiary designation — might better serve your goals.

Learn more about how annuities work on our annuities page or schedule a consultation with our team to discuss your specific situation.