Clients who inherit an annuity may now have a few more options, thanks to a recent private letter ruling from the IRS. Rather than being bound by the terms of the decedent's contract, beneficiaries may be able to exchange inherited contracts for newer, higher-paying contracts, according to PLR 201330016. Such an annuity might have lower costs, come from a stronger company, offer better investment options or have more desirable features.

"Advisors with clients in this situation should work with their firm's experts who are knowledgeable about annuities so that all the options can be considered," says Scott Stolz, president of Raymond James Insurance Group, the insurance general agency for Raymond James. Previously, clients would generally either elect to annuitize the contract within 12 months or take all the money out within five years and pay tax on any deferred gains, Stolz says.

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