Overview: Every annuity involves three distinct roles. Knowing who holds what rights — and what happens when these roles are held by different people — is a frequently tested concept.

The Owner, Annuitant, and Beneficiary

The owner controls the contract. The owner pays premiums, makes investment elections, names and changes beneficiaries, takes withdrawals, and can surrender the contract. Tax obligations during the owner's lifetime fall on the owner.

The annuitant is the person whose life expectancy is used to calculate payouts. The annuitant must be a natural person (a trust or corporation cannot serve as annuitant because it has no life expectancy). Importantly, the annuitant has no contract control — they cannot make withdrawals, change beneficiaries, or modify the investment strategy.

The beneficiary receives the remaining contract value or death benefit when the owner or annuitant dies, depending on how the contract is structured. While the owner and annuitant are alive, the beneficiary has no rights to the contract.

In the most common arrangement, one person fills both the owner and annuitant roles, with a spouse or children named as beneficiaries. This keeps things simple and preserves maximum tax flexibility.

What Happens When Owner and Annuitant Differ?

When the owner and annuitant are different people, complexity increases significantly. Most modern annuities are owner-driven: a death benefit is triggered when the owner dies, regardless of whether the annuitant is still alive. Under Internal Revenue Code Section 72(s), if the owner dies, the contract must distribute its assets — even if the annuitant (a different person) is still living. This collapses any strategy of naming a young annuitant to stretch tax deferral, a common planning mistake.

The practical rule: the owner and annuitant should almost always be the same person. Naming a trust or business as owner also triggers a tax problem — when a "non-natural person" owns an annuity, the contract loses its tax-deferred status under IRC Section 72(u), and annual earnings become currently taxable.