Spousal Continuation

How Spousal Continuation Works

Determining what will happen to your annuity and the money within it after you die can be a complex process.

One annuity option to be aware of is the spousal continuation.

Spousal continuation, sometimes called spousal exception, can only trigger in a very specific circumstance: when your spouse is named as the sole beneficiary of the annuity contract, and you die.

If you have multiple beneficiaries named, if your partner is not your spouse or even if your spouse is listed as a joint owner but not a beneficiary, then spousal continuation likely cannot occur.

When spousal continuation is possible, your spouse essentially takes over your role as the annuity contract owner after your death.

This means, instead of the annuity paying out a death benefit and ending, your spouse can continue on as if the annuity had always been in their name and can receive its guaranteed stream of payments.

In simple terms, the annuity’s ownership flips from you to your spouse.

Note that different annuity carriers may have varying rules, but most annuity contracts do allow for spousal continuation.

Spousal continuation allows a surviving spouse to continue payments from the annuity contract after the death of the annuity owner. It is important to consider both your personal circumstances and the desired outcome for your heirs and beneficiaries.

Marguerita M. Cheng, CFP®, CRPC®, CSRIC®, RICP®CEO of Blue Ocean Global Wealth

Marguerita M. Cheng, CFP®, CRPC®, CSRIC®, RICP®, is the chief executive officer at Blue Ocean Global Wealth. As a CFP Board of Standards Ambassador, Marguerita educates the public, policymakers and media about the benefits of competent and ethical financial planning. She is a past spokesperson for the AARP Financial Freedom campaign.

Examples of Spousal Continuation

For spousal continuation to be possible, your listed beneficiary options must be simple and straightforward.

Say, for example, a husband purchases an annuity contract and lists his wife as its sole beneficiary. When he dies, annuity ownership then transfers to his wife through spousal continuation. She is not obligated to end the contract or receive a death benefit payout. 

If she chooses, she can simply continue to receive the lifetime payments the contract guarantees. 

However, what if the husband had named his wife as the joint owner of the annuity but not the sole beneficiary? In this situation, spousal continuation would not be possible.

A spouse who is a joint owner can benefit from spousal continuation, but only if they are also listed as the sole beneficiary of the contract.

In another example, say you list a trust as the beneficiary of your annuity, and your spouse is the owner of the trust. Under these circumstances, spousal continuation is still typically not possible.

Anything beyond the basic circumstances of a spouse being listed as the sole beneficiary of an annuity contract may make spousal continuation unlikely.

How Spousal Continuation Differs From Other Beneficiary Options

Spousal continuation creates an avenue for an annuity contract to continue on after the death of the contract owner. This gives the surviving spouse the opportunity to continue to receive guaranteed payments or to take advantage of the existing tax-deferred status of the annuity.

However, this is not the only path available for an annuity contract when its owner dies.

For non-spousal beneficiaries or contracts with multiple beneficiaries, an annuity contract is often paid out as a death benefit following death.

The exact death benefit can vary, but it may take the form of the remaining contract value or of the total premium paid into the contract minus any prior withdrawals.

Depending on the contract, death benefits can be paid out as a lump sum or as a set series of payments.

Additionally, contracts may call for dividing the death benefit among multiple beneficiaries, with predetermined portions going to each. 

These options are very different from spousal continuation, which results in the contract remaining active and continuing to function in the name of the spouse.

A death benefit typically signals the end of an annuity contract and the distribution of its remaining value to beneficiaries.

Whether planning for spousal continuation makes sense for you will depend on your personal circumstances and what you envision as the ideal outcome for your heirs or beneficiaries after you die.