CONTROL OVER THE RECOGNITION AND TAXATION OF IRREVOCABLE TRUST EARNINGS
Investing trust assets in an annuity can provide income tax efficiency within the trust and help meet the needs of trust beneficiaries. Taxable income retained by certain non-grantor trusts is subject to comparatively higher effective trust income tax rates and may be subject to an additional 3.8% net investment income tax. Although income may be distributed to trust beneficiaries to help reduce the impact of the trust tax rates, payment of income to the trust beneficiaries may not be desirable. Investment in an annuity by a trust meeting certain requirements may avoid this tax dilemma. Keep in mind that the manner in which the annuity is titled will have an impact on how the annuity contract operates. The titling options and rules are described throughout the remainder of this brochure.
ANNUITIES AND TRUSTS: IRC SECTION 72(u)
Annuities that are owned by trusts that act solely for the benefit of living individuals will receive tax deferral under IRC Section 72(u). With annuities that meet the requirements under IRC Section 72(u), the appreciation of the annuity remains tax-deferred until the trustee requests a distribution.
Annuities owned by trusts that benefit nonnatural entities, businesses, or charities will not receive tax deferral.
FLEXIBLE INVESTMENT OPTIONS WITH GROWTH POTENTIAL
Changing trust objectives and economic conditions may cause the trust to change or modify its investment allocations. In many cases, the reallocation of trust assets may result in transaction costs and/or the realization of capital gains.
DEATH BENEFITS WITH POTENTIAL TO ENHANCE THE VALUE OF ASSETS PASSING TO TRUST BENEFICIARIES
An annuity with a guaranteed death benefit or enhanced death benefit offers the potential for long-term growth with downside protection, allowing the trustee to consider a more aggressive asset allocation for the benefit of the remainder beneficiaries. If the account performs poorly, an enhanced death benefit may provide an amount higher than the original account value at the death of the annuitant.
GUARANTEED LIFETIME INCOME
An annuity can satisfy a need for trust income through a guaranteed lifetime income stream for the income beneficiary of a trust. This can be beneficial for two reasons:
1. It allows the trustee to allocate a specific amount of trust assets to generate a lifetime stream of income.
2. It enables the trustee to invest more aggressively without fear of compromising income needed for the beneficiary’s life, thereby potentially growing the trust assets for the benefit of the remainder beneficiaries.
Investing trust assets in an annuity can provide income tax efficiency within the trust and help meet the needs of trust beneficiaries. Taxable income retained by certain non-grantor trusts is subject to comparatively higher effective trust income tax rates and may be subject to an additional 3.8% net investment income tax. Although income may be distributed to trust beneficiaries to help reduce the impact of the trust tax rates, payment of income to the trust beneficiaries may not be desirable. Investment in an annuity by a trust meeting certain requirements may avoid this tax dilemma. Keep in mind that the manner in which the annuity is titled will have an impact on how the annuity contract operates. The titling options and rules are described throughout the remainder of this brochure.
ANNUITIES AND TRUSTS: IRC SECTION 72(u)
Annuities that are owned by trusts that act solely for the benefit of living individuals will receive tax deferral under IRC Section 72(u). With annuities that meet the requirements under IRC Section 72(u), the appreciation of the annuity remains tax-deferred until the trustee requests a distribution.
Annuities owned by trusts that benefit nonnatural entities, businesses, or charities will not receive tax deferral.
FLEXIBLE INVESTMENT OPTIONS WITH GROWTH POTENTIAL
Changing trust objectives and economic conditions may cause the trust to change or modify its investment allocations. In many cases, the reallocation of trust assets may result in transaction costs and/or the realization of capital gains.
DEATH BENEFITS WITH POTENTIAL TO ENHANCE THE VALUE OF ASSETS PASSING TO TRUST BENEFICIARIES
An annuity with a guaranteed death benefit or enhanced death benefit offers the potential for long-term growth with downside protection, allowing the trustee to consider a more aggressive asset allocation for the benefit of the remainder beneficiaries. If the account performs poorly, an enhanced death benefit may provide an amount higher than the original account value at the death of the annuitant.
GUARANTEED LIFETIME INCOME
An annuity can satisfy a need for trust income through a guaranteed lifetime income stream for the income beneficiary of a trust. This can be beneficial for two reasons:
1. It allows the trustee to allocate a specific amount of trust assets to generate a lifetime stream of income.
2. It enables the trustee to invest more aggressively without fear of compromising income needed for the beneficiary’s life, thereby potentially growing the trust assets for the benefit of the remainder beneficiaries.
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