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Taxation
Trusts come in many different forms and are used for many different purposes. Generally, trusts are either revocable or irrevocable, grantor or non-grantor, inter vivos or testamentary, and simple or complex. Trusts are used to manage assets, distribute income, provide for college educations, pay for funerals, pay estate tax liabilities, and qualify for government entitlement benefits - Medicaid, SSI, and Veterans pension.
Annuities also come in many different forms and are u ...
An Intentionally Defective Grantor Trust ("IDGT") is an irrevocable trust created so that the assets of the trust are attributable to the grantor for federal income tax purposes, but not for gift, estate, or generation skipping transfer tax. The "defect" is that the grantor reports all of the income, deductions, and credits associated to the trust property on his or her personal income tax return. The IDGT does not file an income tax return - IRS Form 1041.
Likewise, when the IDGT ...
Internal Revenue Code ("IRC") § 121 provides that a taxpayer may exclude from taxable income up to $250,000 of the gain realized on the sale or exchange of a principal residence, provided that the taxpayer owned and used the home as a principal residence for periods aggregating at least two years during the five years before the sale date and did not take advantage of the home sale exclusion for other property within the two year period before the sale. A qualified married couple, as wel ...
Under the grantor trust rules, a person who transfers property to a trust and retains certain powers or interests is treated as the owner of trust property for income tax purposes. As a result, the income and deductions attributable to the trust are included in the grantor's income, and reported within his or her federal and state income tax returns. See Internal Revenue Code ("IRC") § 671.
The powers and interests include, but are not limited to:
controls beneficial en ...
According to recent statistics, the majority of long-term care provided in the family home is provided by the children of the homeowner. The care is typically provided without a formal agreement, and is gratuitous in nature. As a result of the care occurring at different times during the week, the child is typically unable to work and is left without any formal compensation. The child's financial future can be placed in grave jeopardy if the care is provided over many years.
...
For any annuity contract issued after April 22, 1987, it must terminate upon the death of any owner and benefits will then be paid to the designated beneficiary. The death of any owner will trigger the termination of the annuity contract even when the contract is owned by a number of individuals - husband and wife. See Internal Revenue Code ("IRC") § 72(s)(1). However, when a non-natural person owns an annuity contract, then the primary annuitant will be treated as the owner ...
The Internal Revenue Code ("IRC") mandates that an IRA owner must begin taking required minimum distributions ("RMD") at age 70½. However, a strict reading of the pertinent sections of the IRC permit an IRA owner to delay taking RMDs until April 1st of the year following the year in which he or she turns 70½. This date is known as the required beginning date ("RBD").
From the RBD forward, a distribution must be taken by December 31st of each year. Typically, clients are advi ...
In many states, an IRA owned by the community spouse is a countable resource for Medicaid purposes. In order to protect the account from a Medicaid spend-down and qualify the institutionalized spouse for Medicaid benefits, the community spouse will be advised to purchase a Medicaid Compliant Annuity. The purpose of the Medicaid Compliant Annuity is to convert a pile of cash (the IRA) into a monthly stream of income. Once annuitized, the community spouse is no longer over-reso ...
Yes, a tax-deferred annuity can easily be converted into a Medicaid Compliant Annuity.
If the current carrier does not provide a Medicaid Compliant Annuity, the tax-deferred annuity can be "transferred" to the desired carrier by way of a 1035 exchange.
A 1035 exchange refers to the section of tax code that allows investors the flexibility to exchange one annuity for another without incurring any immediate tax liabilities. Generally, the surrender of an existing insurance contract is a ...
IRC Section 72(e)(4)(C) provides that if an individual who holds a non-qualified annuity contract transfers it without full and adequate consideration, such individual shall be taxed on an amount equal to the excess of the cash surrender value of such contract.
An exception to this recognition rule exists for the transfer of an annuity to a spouse. The distribution of an annuity contract from a nongrantor trust to a trust beneficiary normally would not trigger the above recognitio ...
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