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Private Annuity Trusts

Private Annuity trusts are a way for an owner of a substantial estate, investments, or other property to transfer the holdings into a trust in exchange for lifetime payments. Property and investments can be transferred into a private annuity trust and sold without paying taxes or penalties. Taxes are only paid when the annuitant(s) receive payments from the annuity.

The individual/owner of property cannot be the trustee and manager of the private annuity trust. Also the trustee cannot be a dependent of the property owner and nor can the property owner/annuitant have any official decisions in regards to the management of the trust. The trustee must also be an adult.

There can be one trustee or two co-trustees. The trustee or trustees decide how property, estate holdings, or investments are sold or reinvested. There are no taxes on the selling of property or holdings that are transferred into a private annuity trust. Taxes are withdrawn when the annuitant receives payments.

Benefits

According to the National Association for Private Annuity Trusts (NAPAT), the benefits of a private annuity trust are:

  • No payment of property gain taxes at time of sale
  • No payment of depreciation recapture taxes at time of sale
  • No payment of state taxes at time of sale
  • Eliminates estate taxes on assets in a private annuity trust
  • Creates an income stream for life or the joint lives of spouses
  • Eliminates the need for property management
  • Offers a “1031” Alternative Strategy
  • Protects family assets
  • Avoids expenses and publicity of probate

Payments

Private Annuity trust holders/annuitants can defer payment for many years, but payment from an annuity must begin by age 70 ½ . Payments are received as long as the annuitant is living.

Annuity payments are fixed during the payments of an annuitant’s life. Each payment will therefore remain the same even if the private annuity trust earns interest. The amount of each payment is determined by the value of the trust and the annuity holder’s age. Whatever else the trust earns is held for trust beneficiaries.


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