Investment Company and Variable Contracts Products Representative (Series 6)Practice Exam

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Is the death benefit from an annuity considered part of a deceased client's estate?

Yes, it is fully included in the estate
No, it is not included in the estate
Only if the estate is named as the beneficiary
It depends on the state law

The correct answer is: No, it is not included in the estate

The death benefit from an annuity is not considered part of a deceased client's estate because annuities typically pass directly to the named beneficiaries outside of the probate process. This means that upon the death of the annuity owner, the proceeds from the annuity go directly to the designated beneficiaries and are not funneled through the estate. Consequently, this type of benefit does not become subject to the claims of creditors of the estate, nor does it affect the distribution of assets governed by a will. While there are exceptions depending on specific circumstances, such as who the beneficiary is, for most conventional annuities, the intention is to ensure a straightforward transfer of the benefit to avoid complications associated with estate settlements. Thus, the correct understanding is that the death benefit from an annuity typically does not contribute to the overall value of the estate.