Monday, September 26, 2005

Private Annuity Trust or Charitable Remainder Trust?

I have found there are more people (even professionals) who know more about Charitable Remainder Trusts than Private Annuity Trusts.

So why one vs. another?

It really depends on your need for your money or income. Both defer or eliminate capital gains tax. But do you want the use of all your money during your lifetime, or will just the interest that the money makes suffice? Do you want to leave a legacy to your heirs or your favorite Charity?

The best time to create either option is when you have a highly appreciated asset such as real estate. If you sell outright, you will lose a great portion of your appreciation to capital gains tax. Maybe up to one third.

A Charitable Remainder Trust will provide the following:
1. You will pass your asset capital gains free to your favorite charity.
2. You can get whatever gains the trust makes during your lifetime as payments.
3. If you are healthy, the trust can purchase a life insurance policy on you which will pay your beneficiary a tax free benefit to replace the money going to charity instead of your heirs.
4. A good choice if you want to separate assets from your estate and you don't need the money from the asset.

A Private Annuity Trust will provide the following:
1. You will defer capital gains tax over the rest of your life and pay in smaller installments once you begin receiving payments.
2. You can defer taking income until age 70 1/2. This will allow your gains to work for you over time while continuing the deferral of taxes.
3. It will provide you with a larger income during retirement.
4. Your beneficiaries will receive any funds remaining in your trust free of estate tax, transfer tax, gift tax, and generation skipping tax.
5. You can still list a charity as beneficiary if you wish.

Both are powerful concepts. Which one is best depends on your own personal needs.

If you would like help deciding which is a better fit, give me a call or send me an email.

Paula Straub
http://www.savegainstax.com

askpaula@savegainstax.com
(760)917-0858