annuity to CRUT – tax consequence
Have client who wants to use her two annuities and establish a CRUT. This is to reduce her taxes for state of NJ. worth 1.1M…NJ is 675k. No heirs but nephews and cousins to receive money
a. one annuity is approx. 115k. cost basis 78k. If we change the name on the contract to a CRUT, will she be taxed on the gain as ordinary income?
b. second annuity is worth approx. 750k. cost basis 500k. If we take out 300k and put with CRUT, will she be taxed on the gain?
Thank you,
Douglas
Permalink Submitted by mk foss on Thu, 2013-09-05 16:26
Annuities withdrawals are all taxable until only the cost basis remains – which is tax free. Transferring an annuity to another individual or an entity is taxed just like a withdrawal.
Permalink Submitted by Bruce Steiner on Sun, 2013-09-08 03:15
Annuities are often unwieldy. She might look to see how much she can cash in each year without it putting her into too high a tax bracket. As for the NJ tax, if she’s leaving her estate to nephews and cousins, New Jersey also has an inheritance tax on transfers other than to close relatives. The rate is generally 15%. It’s credited against the estate tax, but in this case the inheritance tax will be substantially more than the estate tax. The solution is to provide for the nephews and cousins in trust rather than outright. In that way, the tax won’t be due until the assets are distributed to the beneficiaries from the trusts. To get their money sooner, the NJ inheritance tax bureau will offer a substantial discount. Bruce Steiner, attorney, NYC, also admitted in NJ and FL.