How Do Annuities Work When You Die? 
After you make a contribution into an annuity , the value grows tax deferred . This is one of the key reasons that people invest in annuities . If you have had money invested in an annuity for a period of time there may be a large amount of deferred income . When you die your beneficiary will receive the proceeds and will have to pay income taxes on the amount of the deferred income . There is a spousal exemption to this however , so if your beneficiary is your spouse they will have the option of continuing the deferral . 