non qualified annuity in a irrevocable trust-payments to trust beneficiary
I have a daughter of a mother who had her non qualified annuity in a revocable trust. The mother passed in early 2012. Is there a way to pay the daughter(the only beneficiary) annual payments outside of the now irrevocable trust to avoid filing annual 1041’s? The insurance company is saying that the annuity is now in the trust and they cannot bypass the irrevocable trust id # when they make a payment. The annuity is being paid out over 15 years and is considered a stretch annuity under code section 72. I am trying to have the annuity act as a conduit to the daughter so that the daughters ssn is the reporting mechanism on payouts from the annuity which avoids the 1041 and the income is reported directly on the daughters 1040.
Permalink Submitted by Alan - IRA critic on Tue, 2012-12-18 23:12
What are the terms of the trust with respect to when it can terminate or when the annuity can be distributed out of the trust? Until either of those two options is permitted, the annuity payment must be made to the trust and reported under the trust EIN. Basically, the insuror has authority to determine the length of the payout and 15 years is longer than most. The trust would then distribute the payment out to the daughter on a K1 (on daughter’s 1040) or accumulate the payments in the trust and the trust would pay the taxes at the higher trust rates. Basically, the mother’s wishes when the trust was drafted must be honored.
Permalink Submitted by Tom Hullinger on Thu, 2012-12-20 17:03
Thanks for your comments. I am reading the trust document and it appears that the mother wanted all assets disbursed to the daughter after her death. Mind you, I am not an attorney. My biggest concern would be the insurance company distributing the lump sum and the tax consequences. Any other thoughts would be appreciated.