“ I was told by a rep. of the compnay that I only had to pay taxes on 1/4 (my share) of what the annuity earned. is this correct?”=====>correct. If the annuitant dies before distributions begin, the balance of the account will transfer to the owner's listed beneficiary. Annuity death benefit proceeds must be withdrawn within five years, and such withdrawals can be structured in any way the beneficiary chooses. Distributions to the beneficiary of a qualified annuity will result in full taxation of the amount withdrawn, as these accounts contain money that has been entirely untaxed. Only a portion of beneficiary distributions from non-qualified annuities are subject to income taxes; the amount of the original owner's deposits is transferred without liability, while any growth or increased value is taxable to the beneficiary at his own income tax bracket. Regardless of whether an annuity owner’s beneficiary is a spouse or non-spouse, upon his death the entire account value is included in calculating estate tax liability. If death occurred during the accumulation phase, prior to annuitization, all of the annuity’s value is added to the estate. If death occurred after the contract was annuitized, only the total value of those remaining payments is added to the owner’s estate.