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    Can you put an annuity in a trust—and why would you want to?

    July 18, 2025

    can you put an annuity in a trust?

    A trust is a helpful tool for passing along wealth to your loved ones because it can provide some control over how that wealth is managed. An annuity can also be a helpful tool for retirement because it can guarantee* tax-deferred† income for the life of a retiree.

    So, how do these tools work together? Can you put an annuity in a trust, and would you want to?

    In this blog, we’ll take a look at trusts and annuities, and we’ll show you the benefits of this potential powerhouse combination.
     

    Establishing an irrevocable trust with an annuity

    As you work through how to plan your estate, your financial professional or attorney might suggest that you establish a trust. There are many types of trusts. Trusts are generally designed to benefit income beneficiaries, who may receive the income generated by a trust’s assets; remainder beneficiaries, who may receive assets in the future; or both.

    An irrevocable trust may provide significant asset protection including against creditor's claims. Also, this type of trust can help reduce estate tax liability, because it’s considered separate from your estate. On the downside, you can’t change or revoke an irrevocable trust, as you can with a revocable trust. To illustrate how trust-owned annuities work within an irrevocable trust, which many people use to own their annuities, here’s a hypothetical example with a fictitious married couple, Jeff and Kim Benson.

    Jeff and Kim’s financial professional designed a trust with two key benefits: to provide Kim (an income beneficiary) with funds for her life and to pass the remaining assets to their children upon Kim’s passing. They used trust proceeds to fund a $1 million annuity that allows tax deferral to continue through three generations, to benefit Jeff and Kim's children and grandchildren.1
      

    The benefits of putting an annuity in a trust

    Several years later, Jeff passes away. Kim meets with her financial professional to discuss the subject of trusts and annuities, and the benefits and disadvantages of placing assets from the trust into taxable and tax-advantaged accounts. The assets are currently in cash, municipal bonds and exchange-traded funds that follow the long-term investment objectives of the trust.

    The simplest approach for managing the assets would be for the trustee to maintain the current investments. But the market and economic environments are much different today from when the trust was first funded. Leaving the original assets unchanged means missing out on potential returns.

    Kim and her financial professional believe some assets need to be reallocated, although selling certain positions may trigger the capital gains tax. Worse, if ordinary income is retained in the trust—where the tax rates on earnings are much higher than those on a single filer—the trust could be subject to a total tax rate on earnings of over 40%.

    What to do? Moving trust assets to a tax-deferred annuity could be the right way to go for Kim. Many trusts are eligible for tax deferral under IRC Section 72(u).2 In addition, while the trust’s assets continue to grow, an annuity also offers benefits including:

    • Turning income on and off3
    • Reallocating and rebalancing investments within the annuity without triggering taxation4
    • Simplifying portfolio management
       

    Accumulating the legacy

    For these reasons, Kim decides to move some of the trust assets into a tax-deferred annuity. Kim's financial professional suggests she place $1 million of the trust’s original $12 million in assets into that annuity. Kim is entitled to income throughout her lifetime, according to the terms of the trust.

    How much bigger does the trust grow because of the tax-deferred annuity? Assuming an 8% investment growth rate in the annuity less a 2% fee, and with Kim electing not to take any income from the annuity, the trust-owned annuity assets grow to nearly $1.8 million after 10 years. Had she kept the $1 million in its original, taxable account, it would only have grown to nearly $1.5 million.‡
     

    Passing down the benefits of a trust-owned annuity

    At this point, Kim passes away. This triggers the next phase of generational wealth transfer, to the trust’s remainder beneficiaries, their children: Daniel, Matt, and Kate.

    Kim and her financial professional had options on how to title the annuity when it was opened, each with its own pros and cons for generational wealth transfer.

    • Option 1: Standard titling is optimal for providing liquidity

    This would have been the best choice if Kim had expected her children to need liquidity at her death, for expenses such as reducing debt, home renovations, and vacations. The annuity death benefit triggers, and the trust distributes, the money. The downside is that this action creates a taxable event for the trust or for Kim and Jeff's children.

    • Option 2: Pass-in-kind titling is optimal for extending tax-deferral benefits

    This option allows for the longest deferral of taxes. Upon Kim’s passing, the trustee can, if the trust allows, retitle the annuity from the trust as “owner" to the annuitants (children) as owners, without triggering a taxable event.

    What’s more, when each child inherits their own annuity, they can add their spouse as a joint owner and list their children as beneficiaries, continuing the chain of generational wealth transfer. If several beneficiaries are to inherit annuities according to this strategy, an annuity should be opened for each one, naming each beneficiary individually as an annuitant on their respective annuities.5
     

    How children benefit from an annuity in a trust

    When Kim opened the annuity, she and her financial professional chose Option 2, pass-in-kind, because Kim and Jeff had originally created the trust with the fundamental goals of wealth preservation and growth. Now, 20 years after Jeff’s death, their children, Daniel, Matt, and Kate, each inherit individual annuities worth one-third of the nearly $1.8 million annuity total, or about $597,000 each.
     

    Even more benefits for the next generation

    Ten years later, Kim's oldest child, Daniel, who inherited his annuity via pass-in kind, dies. Since he never took income from his annuity, his account balance has grown from nearly $597,000 to just under $1.1 million. Daniel’s only daughter, Sophie, inherits this as his beneficiary. She can choose between two ways to receive the death benefit from the annuity.

    • Option 1: Taking the annuity's death benefit as a lump-sum or an out-in-five option

    With this option, Sophie could choose to receive a lump-sum distribution, which would trigger a significant taxable event. Or she could choose the out-in-five option, which would require the annuity to be entirely liquidated by the end of the fifth year after she inherits it. These are the least tax-efficient options.

    • Option 2: Taking the annuity's death benefit as nonqualified stretch

    With this option, Sophie, now 35 years old, is only required to take a required minimum distribution (RMD) each year based on her life expectancy. This allows the remaining amount to grow on a tax-deferred basis. Sophie selects this option. Over the ensuing 51 years of her life, she withdraws RMDs of over $6.7 million before taxes and nearly $5.5 million after taxes, based on an assumed tax rate of 20%.
     

    A legacy fulfilled over three generations

    If Sophie’s assumptions and outcomes were also applied to her Uncle Matt and Aunt Kate and their children and beneficiaries, the entire pre-tax value of the original $1 million trust-owned annuity would grow to nearly $20.2 million over the course of the three generations.
     

    Ready to put an annuity to work for your trust-owned accounts?

    Talk to your financial professional to learn more about what this powerful tool for generational wealth transfer can do for you and your extended family.

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    *Guarantees are backed by the claims-paying ability of Jackson National Life Insurance Company or Jackson National Life Insurance Company of New York.

    †Tax deferral offers no additional value if an IRA or qualified plan, such as a 401(k), is used to fund an annuity and may be found at a lower cost in other investment products. It also may not be available if the annuity is owned by a legal entity such as a corporation or certain types of trusts.

    ‡Values calculated assume ordinary income tax rates for an irrevocable trust. 

    1. The Bensons are a hypothetical family used for the purpose of illustrating the features of a trust-owned annuity. Assumes no distributions are taken Phases One or Two.

    2. Trusts that do not meet the requirements of 72(u) will not receive the benefit of deferral under a deferred annuity and will be taxed currently on the gains in the contract.

    3. Distributable Net Income (DNI) is the taxable income of the trust computed with certain modifications, Cornell, Legal Information Institute, IRC Section 634(a).

    4. Tax-deferred annuity growth does not contribute to Distributable Net Income.

    5. IRS Private Letter Ruling (PLR) #199905015, says (1) an annuity owned by the credit shelter trust ("B trust") is deemed to be owned by a natural person for purposes of Section 72(u) and, (2) the retitling of the annuity contract from the trust as owner to the annuitant as owner does not trigger a taxable event.

    Annuities are long-term, tax-deferred vehicles designed for retirement and are insurance contracts. Variable annuities and registered index-linked annuities involve investment risks and may lose value. Earnings are taxable as ordinary income when distributed. Individuals may be subject to a 10% additional tax for withdrawals before age 59½ unless an exception to the tax is met. Add-on living benefits are available for an extra charge in addition to the ongoing fees and expenses of the variable annuity and may be subject to conditions and limitations. There is no guarantee that a variable annuity with an add-on living benefit will provide sufficient supplemental retirement income.

    Before investing, investors should carefully consider the investment objectives, risks, charges, and expenses of the variable annuity and its underlying investment options. The current contract prospectus and underlying fund prospectuses provide this and other important information. Please contact your financial professional or the Company to obtain the prospectuses. Please read the prospectuses carefully before investing or sending money.

    Jackson, its distributors, and their respective representatives do not provide tax, accounting, or legal advice. Any tax statements contained herein were not intended or written to be used and cannot be used for the purpose of avoiding U.S. federal, state, or local tax penalties. Tax laws are complicated and subject to change. Tax results may depend on each taxpayer’s individual set of facts and circumstances. You should rely on your own independent advisors as to any tax, accounting, or legal statements made herein.

    Guarantees are backed by the claims-paying ability of Jackson National Life Insurance Company or Jackson National Life Insurance Company of New York and do not apply to the principal amount or investment performance of a variable annuity’s separate account or its underlying investments. They are not backed by the broker/dealer from which this annuity contract is purchased, by the insurance agency from which this annuity contract is purchased, or any affiliates of those entities, and none makes any representations or guarantees regarding the claims-paying ability of Jackson National Life Insurance Company or Jackson National Life Insurance Company of New York.

    Investing in taxable or tax-deferred vehicles involves risk, and you may incur a profit or loss in either type of account. Changes in tax rates and tax treatment of investment earnings may also impact comparative results. Investors should consider their personal investment horizon and income tax bracket, both current and anticipated, when making an investment decision, as these may further impact the comparison. 

    Withdrawals of tax-deferred accumulations are subject to ordinary income taxes. If withdrawn prior to age 59½, there may be an additional 10% federal tax penalty imposed. Lower maximum tax rates on capital gains and dividends could make the investment return for the taxable investment more favorable, thereby reducing the difference in performance between the hypothetical investments shown.

    Annuities are issued by Jackson National Life Insurance Company (Home Office: Lansing, Michigan) and in New York, by Jackson National Life Insurance Company of New York (Home Office: Purchase, New York).  Annuities are distributed by Jackson National Life Distributors LLC, member FINRA. These contracts have limitations and restrictions. Jackson issues other annuities with similar features, benefits, limitations, and charges. Contact Jackson for more information.

    Jackson® is the marketing name for Jackson Financial Inc., Jackson National Life Insurance Company®, and Jackson National Life Insurance Company of New York®.