ARTICLES
The Family Private Annuity
"If more clients and their advisers fully appreciated the impressive
estate planning potential of sales for private annuities ...these
important tools would be more widely used."
ESTATE PLANNING LAW AND TAXATION, by David Westfall,
Professor of Law, Harvard University
An annuity is an agreement whereby the 'annuitant' transfers
property to another in return for a promise by the transferee to
make periodic payments to the annuitant in fixed amounts. Typically
these payments are spread over the life of the annuitant, although
there are also annuities established for a set number of years.
Most annuities are commercial in nature, and sold by insurance
companies. The IRS also recognizes 'private annuities' as valid
instruments.
Private annuities are usually created between family members. For
instance, an elderly parent might create an annuity agreement with a
child. The parent would then transfer property to the child in
return for the child making regular payments to the parent for life.
The main differences between commercial and private annuities are
that the private annuity may be funded with any type of property,
including land or publicly traded securities. Also, all of the
assets transferred to a private annuity are removed from the
annuitant's estate for estate tax purposes, and are not subject to
gift tax.
Private Annuities are suited to the large estate because they avoid
estate and gift taxes, without the need to purchase life insurance.
They are also suited to large estate situations where the Grantors
want any present insurance proceeds to go to their heirs instead of
the IRS.
The "Family Private Annuity"sm is a method used by our law
firm to maximize the numerous benefits of the private annuity. This
approach utilizes three legal tools: a Private Annuity, an
Intentionally Defective Grantor Trust (IDGT) and a Family Limited
Liability Company (Family LLC).
The Intentionally Defective Grantor Defective Trust is used to avoid
the usual 'double income tax' issue in private annuities. Normally,
the children would be taxed on the income withdrawn from the asset,
and then the parents would be taxed again when receiving the annuity
payments from the children. The IDGT eliminates this problem.
A Family LLC is used to lower the income stream to the parents, and
for the parents to retain control over the investments. Often the
income stream is higher than needed, due to the age of the parents
and the large size of the asset involved in the private annuity.
The Family LLC also reduces the value of the asset for tax valuation
purposes, and therefore reduces the required size of the income
stream to the parents. The parents retain control of the assets by
being the 'operating managers' of the LLC, while transferring the
value of the asset to the children in the form of limited member
shares. Please contact us today or call us at
800-201-0413
Email:
info@trustcounselpa.com |
