Losing a loved one is hard enough, so getting their finances in order shouldn’t be an added stress in your client’s life. To avoid unnecessary worry, there are a few resources that both investors and financial advisors should be aware of to help guide them through the process when it comes to annuities.

A recent article in this publication by Dan Jamieson highlighted some of the complicating factors associated with the tax treatment of death benefits from annuities. It raised many important issues, but left advisors without a clear roadmap for navigating this scenario. As a senior life insurance executive for almost 30 years and senior education advisor with the Alliance for Lifetime Income, I know there are a few steps advisors should consider to make the process simpler and less intimidating, while serving their clients’ best interest.

One of the first things that individuals will need to do after losing someone is manage and distribute any investments or assets that their loved one left behind. The process differs for every financial product, and it can be difficult for individuals to know where to start. However, navigating this process for clients is one way advisors can deliver much needed peace of mind and support in a time of need.

Settling a death claim on an annuity is one of the issues that people should be prepared for, but often are not. Annuities—unlike stocks, bonds or mutual funds—are not only investments, but also insurance contracts. This duality makes the process of selling or transferring annuities upon the death of the owner less simple than it is for other investments.

Since non-qualified annuities enjoy the benefit of tax deferral—similar to that of traditional IRAs, 401(k)s, 403(b)s, etc.—upon death of the owner, settlement of the contract to the beneficiary oftentimes requires taxes to be paid on any untaxed gain that might be in the annuity.

This is oftentimes where the challenges for advisors and clients sometimes start. Each insurance company determines which settlement policies to allow, as long as they are in compliance with the current tax code. While a large portion of companies offer the same or similar options, some companies may not offer all of the permitted options. In some cases, this is where confusion can enter the picture—how to settle a death claim and which options are or are not offered for individual annuity contracts.

Financial advisors are in the best position to guide beneficiaries through the process of resolving death claims on an annuity and selecting a settlement option that’s most appropriate and customized to each client’s current situation. The relationship between a financial advisor and a beneficiary during this time is an important one. Not only can the financial advisor help the person through a difficult and confusing time but advising the beneficiary through the settlement process can also be a great foundation for building and maintaining a new trusted client-advisor relationship.

Although financial advisors are great resources for their clients, the different settlement options that each insurance company makes available creates a situation that can be challenging to navigate, and near impossible for financial advisors to know the available settlement options for every insurance company that offers annuities in the marketplace.

Since the settlement options are numerous, there are a few best practices that every financial advisor can utilize to assess which one is best for their client.

The first place to seek accurate and appropriate information is the customer service unit of the company who issued the annuity contract, who are happy to answer any questions and guide financial advisors through the different settlement options they offer. They can also put advisors and clients in touch with claims department personnel, who are experts in the settlement process and can make sure the correct paperwork is sent to the proper individuals.

If the advisor has used the company in the past, they can also contact the local insurance company wholesaler who they typically work with, to help start the settlement process.

Spouses are also afforded certain settlement options that are not made available to non-spouse beneficiaries, making it especially important for financial advisors to connect with the issuing company about any settlement options that may be unique to their client’s specific circumstances.

Financial advisors and beneficiaries should also be aware of another option they have—called a 1035 exchange—when settling death claims on annuities. If the settlement option that is best for the beneficiary is not available with the issuing company, there may be an opportunity to seek outside settlement options by transferring the death claim to a company that does offer the desired plan.

While 1035 exchanges can be a great option for beneficiaries who are not provided the options most suited for their situation by the original issuing company, not all companies will allow death claims to be moved under a 1035 exchange. To address this challenge, financial advisors can be a liaison for the beneficiaries by asking the surrendering company if they will honor the 1035 exchange request, without reporting a taxable event.

Advisors should also make sure that their client is aware that moving the contract to another company does not alleviate the need to settle the death claim, and therefore they do not have the option of just letting the new contract continue as a deferred annuity. By discussing these caveats, financial advisors will be able to bring all options to the table for their clients, helping them to understand and decide which step is most desirable.

One last, but very important thing to remember is that beneficiaries have one year from the date of the owner’s death to make their settlement selection. If they do not make their choice during that timeframe, they will likely be left with a lump sum distribution—which may not be what the beneficiary wants or is best for them.

Choosing which death settlement option is right for a client does not need to be a major headache, and financial advisors are best suited to help make an already difficult time easier for beneficiaries.

To make it as simple as possible for everyone involved, financial advisors should remember these helpful tips and resources for properly evaluating the landscape of available settlement options. By guiding beneficiaries through the process and acting as their confidant, financial advisors can help provide the plan that makes the most sense for their individual needs and will honor the legacy of the loved ones they’ve lost.

Michael R. Harris, CFP, ChFC, CLU, is a senior education advisor with the Alliance for Lifetime Income.