Funding Rev Trust w/non-q annuity…
I believe this is permissable. I have a husband and wife, both 2nd marriage, and both w/two children from their first marriage. We could name all 4 children as the contingent bene., but the surviving spouse could change the contingent bene’s once the first spouse dies. I’ve never named the Rev Trust as the owner of the non-q annuity with any other clients. Thoughts?
Permalink Submitted by Joseph Arsenault on Thu, 2010-06-17 04:48
Normally the trust owns the annuity, the grantor (or another individual) is the annuitant, and the trust is the beneficiary. There are PLRs that allow a trust to act in the interest of a natural entity and retain deferral status for the annuity. You would obviously want the trust drafted appropriately so that your circumstance is carried out appropriately. Should be no problems using an annuity inside the trust in most cases.
Permalink Submitted by mk foss on Thu, 2010-06-17 17:10
I believe that a trust is taxable annually on the increase in value in an annuity even if no income is withdrawn. I don’t think a trust agreement can be drafted to change the tax treatment of annuities owned by trusts. This may not be a problem if they’d like the income to be withdrawn and taxed annually.
Permalink Submitted by Joseph Arsenault on Thu, 2010-06-17 21:11
Thats not accurate.. If the trust is acting in the interest of a natural entity they will retain deferral status (See Sec 72(u)). Several PLRs have backed this up. For example, PLR 19990515 deemed that the trust (in this case a credit shelter trust) acted in the interest of a natural person for purposes of Sec 72(u). In this particular case the annuity does not lose deferral status and also, upon dissolution of the trust, the retitling of the annuity contracts to the beneficiaries was not taxable. If the trust is acting in the interest of a natural entity, it is not taxable annually.