Cash Out Your Estate Annuity

Written By: author image Amanda Dobanton
author image Amanda Dobanton
Amanda Dobanton - Bara Goldberg - Bara is a seasoned expert in the structured settlement and annuity field, with a successful career in structured settlement factoring. Her experience spans prominent companies such as J.G. Wentworth, Peachtree Settlement Funding, and Liberty Settlement Funding, where she managed substantial marketing campaigns. Constantly updating her knowledge, Bara is committed to providing exceptional experiences and maintaining her position as a trusted professional in the industry.

An estate annuity is a financial product that provides a guaranteed income stream to the annuity owner or their beneficiaries, typically after the owner’s death. Estate annuities are often used as an estate planning strategy to transfer wealth to heirs while minimizing taxes and probate costs. 

These annuities can also be an essential component of retirement planning. They offer a guaranteed income for life and can supplement other sources of retirement income, such as Social Security or qualified retirement plans.

Why Someone Might Consider Cashing Out An Estate Annuity?

There are several reasons why someone might consider cashing out an estate annuity:

  • Immediate financial needs: The beneficiary may require access to the funds for unexpected expenses, such as medical bills or debt obligations.
  • Desire for flexibility: The beneficiary may prefer a lump sum payment to invest or use as they see fit rather than receiving periodic payments.
  • Tax planning: Cashing out an annuity can have tax implications that may be more favorable for the beneficiary’s financial situation, particularly when considering estate tax and income tax consequences.
  • Simplifying the estate: Removing the annuity from the estate can streamline the distribution of assets to heirs.

Types of Annuities That Can Be Cashed Out 

Here are some different types of annuities that can be cashed out and those that cannot be liquidated.

Deferred Annuities 

Deferred annuities are contracts that accumulate value over time before distributing income payments to the annuitant. These annuities can be either qualified or non-qualified, depending on whether they are funded with pre-tax or after-tax dollars. The three main types of deferred annuities are:

  • Variable annuity: These annuities offer the potential for growth by investing in various sub-accounts, similar to mutual funds. The account value and income payments can fluctuate based on market performance.
  • Fixed annuity: With fixed annuities, the insurance company guarantees a fixed interest rate and income payment for the duration of the contract.
  • Fixed index annuity: These annuities offer growth based on the performance of a specified market index and protection against market downturns through a guaranteed minimum return.

Annuities That Cannot Be Cashed Out 

Certain types of annuities are designed only to provide ongoing income and cannot be cashed out:

  • Immediate annuity: Once an immediate annuity is purchased and income payments begin, the contract cannot be surrendered for a lump sum. These annuities are often used to provide a guaranteed lifetime income in retirement.
  • Medicaid-compliant annuity: These annuities are intended to help individuals qualify for Medicaid while preserving assets for a spouse. Cashing out would disrupt the planning strategy and may result in ineligibility for Medicaid.
  • Qualified Longevity Annuity Contracts (QLACs): QLACs are deferred income annuities purchased within a qualified retirement plan, such as a 401(k) or IRA. They are designed to provide income later in life and cannot be cashed out.

Ways to Cash Out an Estate Annuity 

You have various options for cashing out an estate annuity, including full surrender, partial withdrawal, getting annuity loans, and selling payments to a third party.

Full Surrender 

Surrendering an annuity means canceling the contract and receiving the cash value in a lump sum. The cash value is the annuity’s current value minus any applicable surrender charges or market value adjustments. 

Surrendering an annuity may result in substantial fees and tax consequences, impacting your personal finance and retirement planning.

Partial Withdrawal 

Some annuity contracts allow for partial withdrawals, enabling the annuity owner or beneficiary to access a portion of the funds without fully surrendering the contract. Depending on the specific contract terms and the annuitant’s age, partial withdrawals may be subject to surrender charges and tax implications. 

Annuity Loans 

Certain annuity contracts offer the option to borrow against the annuity’s cash value. Annuity loans typically do not trigger surrender charges or tax consequences, as long as they are repaid according to the contract’s terms. However, any outstanding loan balance at the time of the annuitant’s death will be deducted from the death benefit, which may impact the inheritance received by the annuity beneficiary.

Selling Annuity Payments To A Third-party

Another option for accessing the value of an estate annuity is to sell some or all of the future income payments to a third-party company, such as Fairfield Funding. This process involves transferring the right to receive the annuity payments in exchange for a lump sum. The two main types of annuity payment sales are:

  • Partial sale: A partial sale allows the annuity owner or beneficiary to sell a portion of the future payments for a specified period while retaining the remaining payments.
  • Lump-sum sale: In a lump-sum sale, the entire stream of remaining annuity payments is sold in exchange for a single lump-sum payment.

What You Need To Know Before Cashing Out Your Estate Annuity

Before cashing out an estate annuity, you must consider some critical factors, including surrender charges, tax implications, the impact on long-term financial and estate planning goals, and alternatives to cashing out.

Surrender Fees

As discussed above, annuity contracts often include surrender charges, which are fees imposed by the insurance company for withdrawing funds or terminating the contract before a specified date. Surrender charges can be substantial, typically starting high and gradually decreasing over several years. Hence, it’s essential to review the contract carefully to understand the surrender charge schedule and how it may impact the net payout, as well as your overall personal finance and retirement planning.

Tax Implications Of Cashing An Estate Annuity

Cashing out an estate annuity can trigger tax liabilities, significantly reducing the net proceeds. Key tax considerations include:

  • Income tax: Any portion of the annuity payout that represents investment gains or untaxed contributions will be subject to ordinary income tax. The taxable amount will be added to the recipient’s taxable income for the year and taxed at their marginal tax rate. The Internal Revenue Service (IRS) provides guidance on the taxation of annuity distributions.
  • Early withdrawal penalty: If the annuitant is under age 59½ at the time of the cash-out, the taxable portion of the payout may also be subject to a 10% early withdrawal penalty, unless an exception applies. This penalty is in addition to any income tax owed on the distribution.
  • Estate tax: If the estate annuity is part of a larger estate, cashing out the annuity may have implications for estate tax planning. It’s important to consult with a qualified tax professional or estate planning attorney to understand how cashing out the annuity may impact the overall estate tax liability.

Impact On Long-term Financial And Estate Planning Goals 

Cashing out an estate annuity can significantly affect the beneficiary’s long-term financial and estate planning goals. Annuities are often used to provide a predictable income stream and can be an important component of a comprehensive retirement income plan. Cashing out the annuity may disrupt this plan and could potentially lead to a shortfall in retirement income, especially if the annuity was providing a guaranteed lifetime income.

Alternatives To Cashing Out An Estate Annuity

Before deciding to cash out an estate annuity, it’s important to consider alternative options that may better align with the beneficiary’s financial needs and goals. Some alternatives include:

  • Annuity exchanges: In some cases, it may be possible to exchange the estate annuity for a different type of annuity that offers more favorable terms or flexibility, such as a variable annuity or a fixed index annuity.
  • Beneficiary changes: If the beneficiary does not need the annuity income, they may be able to disclaim their interest in the annuity or transfer their beneficiary status to another individual, such as a child or grandchild.
  • Systematic withdrawals: Some annuity contracts allow for systematic withdrawals, which can provide a regular income stream without fully surrendering the contract. This option may be particularly attractive if the annuity is a non-qualified annuity funded with after-tax dollars.

The Process of Cashing Out an Estate Annuity 

Here is a step-by-step process of cashing out an estate annuity, from reviewing the contract terms to receiving the lump sum and managing the funds.

  • Step#1: Review annuity contract terms 

The first step in cashing out an estate annuity is to thoroughly review the contract terms to understand the specific rules, restrictions, and penalties that may apply. Pay close attention to surrender charges, withdrawal provisions, and any riders or benefits that may impact the cash-out process. If the annuity is a qualified annuity, such as an IRA annuity, be sure to consider the specific rules and regulations that apply to qualified plans.

  • Step#2: Compare surrender vs selling payments 

Evaluate the options for accessing the funds, comparing the costs and benefits of fully surrendering the contract versus selling some or all of the future income payments. Consider factors such as the net payout, tax implications, and long-term financial impact on your personal finance and retirement planning. If the annuity is providing a guaranteed lifetime income, carefully weigh the consequences of giving up that income stream.

  • Step#3: Gather required documents 

To initiate the cash-out process, you’ll need to gather several documents, which may include:

  • The original annuity contract
  • A completed surrender or sale request form
  • Proof of identity and ownership
  • Tax forms, such as a W-9 or 1099
  • A death certificate for the annuity owner, if applicable
  • Step#4: Submit request to insurance company 

Once you have gathered the required documents, submit the cash-out request to the insurance company that issued the annuity. They will review the request and provide guidance on any additional steps or requirements. If you are selling payments to a third-party company, such as Fairfield Funding, they will handle the communication with the insurance company on your behalf.

  • Step#5: Receive lump sum and manage funds 

Upon approval of the cash-out request, you will receive the lump sum payout, either from the insurance company or the third-party purchaser. It’s crucial to have a plan in place for managing and investing the funds in a way that aligns with your financial goals and risk tolerance. Consider consulting with a financial advisor to develop a comprehensive plan that takes into account your personal finance, retirement planning, and estate planning objectives.

How Fairfield Funding Can Help You Cash Out Estate Annuity?

Fairfield Funding specializes in helping clients navigate the complex process of cashing out estate annuities. Our experts have extensive knowledge of the various types of annuities, including qualified and non-qualified annuities, and the factors that impact the cash-out value. We can provide guidance and support throughout the entire process, from evaluating your options to completing the necessary paperwork and facilitating the payout.

✅ Personal 1:1 Guidance For Your Unique Situation 

At Fairfield Funding, we understand that every client’s situation is unique.

Our team will provide customized recommendations based on your individual circumstances, taking into account factors such as your retirement planning, estate planning, and personal finance goals. We’ll help you make an informed decision that aligns with your best interests and supports your long-term financial well-being.

✅ Competitive Offers And Fast Turnaround Times 

When you work with Fairfield Funding to cash out or sell your estate annuity payments, you can expect a competitive offer and efficient processing. We are a reputable annuity buyer, offering the highest possible payouts for our clients. 

✅ 15+ Years Of Experience In Estate Annuity Cash-outs And Sales 

Additionally, our streamlined process and dedicated team ensure that your transaction is completed quickly so you can access your funds as soon as possible and put them to work in support of your personal finance and retirement planning goals.

FAQs On Cashing Out Estate Annuity Withdrawal

The timeline for receiving funds can vary depending on the insurance company, the specific contract, and the cash-out method chosen. In general, the process can take anywhere from a few weeks to several months. 

In some cases, it may be possible to avoid surrender charges when cashing out an estate annuity. This can depend on factors such as the age of the annuity, the specific contract terms, and any applicable riders or benefits. Our team at Fairfield Funding can help you understand your options and identify strategies to minimize surrender charges, ensuring that you receive the maximum payout possible.

Yes, in many cases, it is possible to sell a portion of your estate annuity payments rather than cashing out the entire contract. 

Consult With A Financial Advisor 

Before making any decisions about cashing out an estate annuity, it’s important to consult with a qualified financial advisor who can provide personal guidance based on your specific financial situation, goals, and risk tolerance. 

They can help you evaluate your options, understand the potential impacts on your long-term financial plan, and identify strategies to minimize taxes and maximize your benefits. A financial advisor can also help you develop a comprehensive retirement income plan that takes into account your annuity income, Social Security benefits, and other sources of income, ensuring that you have a stable and reliable income stream throughout your retirement years.

Request A Free Quote From Fairfield Funding!

If you’re considering selling your estate annuity payments, contact Fairfield Funding for a free, no-obligation quote. Our team will review your annuity contract


author avatar
Amanda Dobanton General Counsel
Amanda Dobanton - Bara Goldberg - Bara is a seasoned expert in the structured settlement and annuity field, with a successful career in structured settlement factoring. Her experience spans prominent companies such as J.G. Wentworth, Peachtree Settlement Funding, and Liberty Settlement Funding, where she managed substantial marketing campaigns. Constantly updating her knowledge, Bara is committed to providing exceptional experiences and maintaining her position as a trusted professional in the industry.

Amanda Dobanton

Bara Goldberg - Bara is a seasoned expert in the structured settlement and annuity field, with a successful career in structured settlement factoring. Her experience spans prominent companies such as J.G. Wentworth, Peachtree Settlement Funding, and Liberty Settlement Funding, where she managed substantial marketing campaigns. Constantly updating her knowledge, Bara is committed to providing exceptional experiences and maintaining her position as a trusted professional in the industry.