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The primary benefit of a Grantor Retained Annuity Trust (GRAT) is to freeze the value of a property transferred to the trust, typically business interests, securities, or real estate, so that the future appreciation on such property will pass estate tax-free to the Grantors beneficiaries.
Should an annuity be in a trust?
Using an annuity within a trust is not usually necessary. If your attorney has a special reason for doing so, we naturally set the annuity up as instructed. However, since annuities are already tax deferred, already have a named beneficiary, and are probate free, they are often not needed at all.
What is a grantor retained annuity trust and how does it work?
A GRAT is a trust created so that individuals and families can move wealth to heirs while using little, if any, of their lifetime federal gift and estate tax exclusion. An individual would work with an attorney to set up an irrevocable trust and transfer assets into it.
What are the disadvantages of an annuity?
The main drawbacks are the long-term contract, loss of control over your investment, low or no interest earned, and high fees. There are also fewer liquidity options with annuities, and you must wait until age 59.5 to withdraw any money from the annuity without penalty.
Can you have an annuity in a trust?
Trust is owner and beneficiary of annuity. Trustee names annuitant. Annuity contracts owned by trusts that merely hold the annuity contract as an agent for a natural person i.e., all the beneficiaries are natural persons are generally treated as annuity contracts for income tax purposes.
Related Searches
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People also ask
What is the purpose of a grantor retained income trust?
A grantor retained income trust is typically used for one specific purpose: to minimize taxes in estate planning. Keeping estate taxes as low as possible means you have more assets to pass on to your beneficiaries when you die. When assets are transferred to a GRIT, theyre valued at a discount.
Why put an annuity in a trust?
An annuity can help a financial professional with dual trust obligations through income control and tax efficiency. In some cases, current investment income can be the last thing a trust wants or needsthis is because income retained in the trust is subject to comparatively higher trust income tax rates.
How does grantor retained annuity trust work?
A GRAT operates as follows: the Donor transfers high income-producing assets or assets with substantial growth potential (or cash to be invested in such assets) to a trust from which the Donor will receive a fixed amount annually (an annuity) for a designated period of years (GRAT Term).
What happens when a trust owns an annuity?
When a trust is the owner of the nonqualified annuity, the trust is generally the beneficiary of the annuity. After the annuitant dies, the death benefit from the annuity, if any, is then paid to the trust and the terms of the trust document control how the death benefit is managed and distributed.
Does trust pay taxes on annuities?
Accordingly, if a revocable living trust owns an annuity, it would remain tax deferred, and there is no problem with having such a trust purchase and own an annuity.
Related links
Life Income Gifts - Planned Giving Wiki
Charitable Remainder Annuity Trust Charitable Remainder Unitrust trusts that allow donors to place resources into a tax-favored trust that pays income
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