Private Annuity Trusts - Supercharge your Retirement
You have made some great investments in Real Estate or in a
Stock Portfolio. Congratulations! Now you are ready to retire on
your gains. But wait. To benefit from your investment
appreciation, you're going to have to sell some or all of those
assets. If you sell your investment property, you will need to
pay capital gains tax to the Federal Government, State, and you
will also pay recaptured depreciation. If you're in California,
add another 3 1/3% in withholding. That's a huge chunk of
change, and a big blow to your savings. If you sell your stocks,
you'll be giving up at least 15% to capital gains. There is also
no guarantee that the long term capital gains rate will remain
at 15% forever. It could increase down the road. How can you
start receiving income but not get hit with huge amounts of tax?
For real property, there is a 1031 exchange into a tenant in
common property. This works well for investors that don't want
to manage property anymore, but still enjoy the benefits of real
estate ownership. This is a subject covered in many of my
previous articles. There is another powerful concept. It's
called a Private Annuity Trust. These trusts have been around
since 1939, but until the last few years have primarily been
used for Estate Planning purposes. The Private Annuity Trust
also works extremely well for Retirement Planning. It is fairly
complex to set up and administrate, so many financial planners,
real estate brokers, CPAs and Attorneys still don't know much
about them. The procedure is basically this. 1. A Private
Annuity Trust is established. You, the seller become the
annuitant. 2. A fair market appraisal is done to determine
property value. 3. The seller can negotiate a sale price at the
appraised value. 4. The property is transferred to the trust and
the trust is now the seller of the property and retains the
proceeds. 5. The proceeds are invested by trustees (not the
annuitant) and an arrangement is made to pay the annuitant (and
perhaps their spouse) in monthly payments for the remainder of
their lives. The capital gains tax is spread out over the course
of your lifetime. If you pass away before your estimated average
calculated life span, the remainder of the assets pass to the
beneficiaries. The balance will be passed free of Estate Tax,
Gift Tax, Generation skipping tax, and Transfer tax. Any capital
gains tax still due will be paid before disbursement. 6. Other
properties or stocks can be added to the trust at a later time,
and recieve the same benefits. As an example, let's say you have
a million dollar gain on a property. You might very well owe
350K in taxes. With a Private Annuity Trust, all one million
goes to work for you, and you can receive montyly income for the
rest of your life. The exact amount is determined by your age
and the time you choose to begin receiving your payments. You
have the option to defer receiving payments until the age of 70
1/2. This allows the assets to grow compounding and tax
deferred, and allows for greater income in the future. The trust
removes the assets from your estate, as the trust now owns them
and the annuitant relinquishes control over how they are
invested. Setting up a Private Annuity Trust can definitely give
a turbo boost to your retirement bottom line. Ask yourself,
would you rather give a "gift" to the government in a big lump
sum, or would you like to pay in small chunks and have the bulk
of your profits working for you and earning compounded interest
for years to come?
Find out if you qualify to save thousands in capital gains tax.
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