There are a number of reasons you might buy an annuity for someone else. Of course, the one many people dream about is winning the lottery and giving family and friends income they can't outlive. Other reasons are to give a good start on a child's retirement account or to provide for a handicapped child after your death. Since the owner has to sign the contract, if you don't want the other person to be the owner or they can't, you can make them the annuitant, the person who receives an income, without their signature.
Get the best annuity for your annuitant. If the individual is a child, you'll probably want to purchase a variable annuity. Variable annuities tend to keep pace with inflation better than fixed annuities do. That's because they contain stock and, as prices on goods and services rise, so do stock prices in most cases. Fixed instruments, ones that give only interest, don't. Inflation affects the buying power of the money and high inflation with low returns actually depletes it, regardless of the account growth.
Discuss the annuity with a representative. Some companies don't allow the owner to be a different person than the annuitant. Since you're opening the annuity, you'll be the owner. You also need to discuss the potential transfer of ownership when your child reaches the age of majority using the Uniform Transfer to Minors Act, if the annuity is for a child. The UTMA automatically transfers ownership to the child when he reaches 18 to 21, depending on the state rules. Sometimes, the best way to set up these types of annuities is to discuss your needs first with the representative to see what is best for your situation and whether their company allows an owner and annuitant to be different people.
Secure the Social Security number of the annuitant. You'll need this number when you open the annuity. While the annuitant doesn't sign the contract, the company needs his Social Security number.
Open the annuity. If you're going to start payments immediately, some companies require a change in ownership to the annuitant. While in most cases, this does not trigger a taxable incident; you need to check with your tax advisers before you proceed. If you're simply allowing the annuity to grow, and it is for an adult annuitant, you still might want to change ownership since the amount grows the longer you hold an annuity, and it might become more than the annual gift limit. Insurance companies normally do not send out 1099-Rs, the tax form showing taxable gain, when you change ownership.
Expect to get a tax form in the mail if you're the owner and someone else is the annuitant and receives payment. If the company doesn't require a change in ownership, the law requires they send a 1099-R to the owner of the annuity when they make payments to the annuitant. This is one reason most companies require an ownership change if payments begin.