- Jurisdiction
- California
The US tax code is specific about tax treatment
of annuities that fund a Grantor Trust or more familiar a family
trust. When the grantor dies the IRS will consider this a taxable
event depending on who the specified beneficiary is. If the annuity
beneficiary is a spouse, she has the option of continuing the annuity
till maturity or to begin the annuity pay-out phase. If the
beneficiary is a trust, then the distribution is mandatory over a
5-year pay-out period. The tax code is clear describing the taxable
event, see Par. 26 US Tax Code Section 72(u,s).
The tax code handles the taxable event in two
parts to prevent non-persons like corporations and charities from
investing in tax-deferred investments where the annuitant never dies,
for that would mean the investment can be deferred from tax
indefinitely.
When annuities are drawn the annuity contract
may specify the continuation option for the annuitants. Either the
pay-out phase begins when the beneficiary receives the pay-out
(lumped sum or distributed), or the spouse may continue the annuity
contract till the annuity maturity date. Annuities where husband and
wife are joint-annuitants are common.
The trouble begins when an annuity is used to
fund a subsequent family trust, the spouse is no longer the
beneficiary, the trust is. Insurance companies view the trust as a
non-person, thus the pay-out phase begins when husband dies
regardless of the annuitant's intent or the accumulation period
elapsed after death. If you hold an annuity in a family trust, you
might disagree with the position of insurance companies.
If an annuity was drawn with husband and wife as
joint-annuitants as persons, and subsequently the annuity is used to
fund a family trust, the wife is entitled her two continuation
options once the husband dies. The spouse is entitled the
continuation since 1) The annuity preceded the trust 2) The trust is
not a charity or corporation 3) The INTENTION of an annuity drawn for
joint-annuitants husband and wife was clearly for the benefit of the
surviving spouse.
Does anyone have experience with contract law
for annuities, better yet can anyone show case law to show the intent
of joint annuities is for the surviving spouse? For insurance
companies who substitute the annuity death benefit instead of
maturity value, is this bad-faith insurance? Is funding a trust with
an annuity a scam by insurance companies to hold annuitants capital
by attrition? What about non-disclosure in the practice of funding
trusts with annuities?
of annuities that fund a Grantor Trust or more familiar a family
trust. When the grantor dies the IRS will consider this a taxable
event depending on who the specified beneficiary is. If the annuity
beneficiary is a spouse, she has the option of continuing the annuity
till maturity or to begin the annuity pay-out phase. If the
beneficiary is a trust, then the distribution is mandatory over a
5-year pay-out period. The tax code is clear describing the taxable
event, see Par. 26 US Tax Code Section 72(u,s).
The tax code handles the taxable event in two
parts to prevent non-persons like corporations and charities from
investing in tax-deferred investments where the annuitant never dies,
for that would mean the investment can be deferred from tax
indefinitely.
When annuities are drawn the annuity contract
may specify the continuation option for the annuitants. Either the
pay-out phase begins when the beneficiary receives the pay-out
(lumped sum or distributed), or the spouse may continue the annuity
contract till the annuity maturity date. Annuities where husband and
wife are joint-annuitants are common.
The trouble begins when an annuity is used to
fund a subsequent family trust, the spouse is no longer the
beneficiary, the trust is. Insurance companies view the trust as a
non-person, thus the pay-out phase begins when husband dies
regardless of the annuitant's intent or the accumulation period
elapsed after death. If you hold an annuity in a family trust, you
might disagree with the position of insurance companies.
If an annuity was drawn with husband and wife as
joint-annuitants as persons, and subsequently the annuity is used to
fund a family trust, the wife is entitled her two continuation
options once the husband dies. The spouse is entitled the
continuation since 1) The annuity preceded the trust 2) The trust is
not a charity or corporation 3) The INTENTION of an annuity drawn for
joint-annuitants husband and wife was clearly for the benefit of the
surviving spouse.
Does anyone have experience with contract law
for annuities, better yet can anyone show case law to show the intent
of joint annuities is for the surviving spouse? For insurance
companies who substitute the annuity death benefit instead of
maturity value, is this bad-faith insurance? Is funding a trust with
an annuity a scam by insurance companies to hold annuitants capital
by attrition? What about non-disclosure in the practice of funding
trusts with annuities?