The opportunity to obtain tax-deferred growth in a non-qualified deferred annuity is a key feature of the contracts, particularly for those who face high tax brackets and have already maxed out other available tax shelters. An added benefit is that non-qualified annuities aren’t even subject to RMD obligations during the lifetime of the annuity owner.
However, a significant complication of annuities is that upon the death of an annuity owner, the beneficiary must begin post-death Required Minimum Distributions from the contract. And notably, the post-death RMD obligation occurs at the death of the first owner with a jointly owned contract, which means that a surviving joint owner can even be forced to liquidate their own asset and trigger a taxable event!
Fortunately, the tax law does allow for “spousal continuation” of an annuity payable to a surviving spouse. But that rule triggers based on whether the spouse is named as the beneficiary, not the joint owner. In fact, once a surviving spouse is properly named as a beneficiary, there’s often no reason at all for the annuity to be jointly owned anymore!
And between non-spouses, the situation can be even more problematic, as the death of one annuity owner can force the surviving owner to begin taking “stretch annuity” payments over his/her life expectancy, even if it was the survivor’s money in the first place and he/she doesn’t want it!
Which means in the end, most situations where an annuity is jointly owned, it probably shouldn’t be, as most of the benefits of joint ownership can be accomplished by other means when using an annuity anyway (unless specifically pursuing contractual living or death benefit guarantees that are designed to apply for both spouses jointly). And in situations where it’s not actually necessary to jointly own the contract anyway, by not owning the contract jointly, the risk of unintentionally forcing the contract to be liquidated at an undesirable time is greatly reduced!