Case Study:
Using Annuities with Trusts

During one recent month, the Griessel Tiffany Group received two large individual investments (one for $7 million and one for $4.6 million) that were both contributions to trusts

In both situations, Griessel Tiffany Group had a client with a substantial trust where the intent was to grow the trust's assets as much as possible to eventually be passed down to the next generation. Our advisors realized that trust income will generally be taxed at the very high income tax rate of 35% over $10,050.  This is why annuities have particular appeal when compared to other investments.  Annuities generally maintain its tax deferred status when owned by a trust.  This allows for greater appreciation potential.  The investments are not reduced by income taxes while in the trust.

The second part of this strategy is that if structured properly, the trust could distribute the annuities to the trust beneficiaries in a nontaxable manner.  In other words, when the trust terminates (usually upon the death of the last surviving spouse) the annuities could be re-registered in the name of the trust beneficiaries. Although a change of ownership generally requires a realization of taxable income to the extent of any gains, there's a little known exception in the Internal Revenue Code when the transfer is from a trust to a trust beneficiary.  

Therefore, the trust beneficiary will become the owner of the annuity, inherit the contract's cost basis and continue to enjoy the tax deferred benefits and other guarantees offered by the annuity.  Furthermore, since these are non- qualified annuities, there are no Required Minimum Distributions (RMDs) until after the trust beneficiary (now the new owner) dies.  In effect, this strategy allows for the potential deferral of income taxes over multiple generations.

Please keep in mind this is a niche idea and does not apply to all trusts.  Certain criteria must be considered such as the type of trust involved, selecting the proper annuitant and the age of the annuitant.