Colorado Life Producer License Practice Test

What aspect of annuities helps in the liquidation of estate?

1. Immediate payout

2. Favorable tax treatment

3. Death benefit provision

4. Guaranteed returns

The correct answer is: Death benefit provision

The death benefit provision of an annuity plays a significant role in the liquidation of an estate. This feature ensures that upon the annuitant’s death, a designated beneficiary receives a specified amount of money. This payment can provide liquidity to the estate, allowing beneficiaries to settle any debts, taxes, or other obligations that the estate may have. This aspect of annuities is particularly important in estate planning because it can help ensure that heirs receive a financial benefit without having to go through the intricacies of the probate process. Additionally, the death benefit can be a straightforward and effective way to transfer wealth to beneficiaries, enhancing the estate's overall value and assurance for the individual's family. While immediate payouts, favorable tax treatment, and guaranteed returns are valuable features of annuities, they do not specifically address the liquidation of an estate in the same way that a death benefit provision does.