Thursday, October 19, 2006

Breaking News Regarding the Private Annuity Trust

On October 18, 2006 the US Treasury Department issued a new proposed regulation regarding private annuity trusts.

It is reg 141901-05. It has not been published yet, but will be very soon.

For the time being, Private Annuity Trusts have been discontinued for use. We believe it is due to the number of PATs which were improperly structured, funded, and administered.
In many cases, close relatives were made trustees and this brought into question the "hands off" intention of a non-grantor trust.

The investments and borrowing practices in some of these trusts were also improperly and imprudently handled.

In many cases the trusts were not properly set up, filed, and the tax returns required were either not filed as necessary or were filed in error. This was mostly due to non-professionals handling the details and not knowing what was required.

For years, the trust company I represent has requested the IRS establish clear guidelines to prevent this type of abuse. It now seems this may be in the process of happening, but unfortunately, instead of publishing guidelines first, the IRS decided to discontinue the PAT until further notice. There will be a hearing on the proposed regulation on February 16, 2007.
As you can imagine, there are many attorneys working on alternate solutions to this sudden ruling.

The Capital Gains Tax Problem still exists for thousands of people and businesses. This need will only continue to increase and there are still solutions and strategies available to implement.
The current momentum is that we are working on variations of the Charitable Remainder Trust. It has always been one of the options and now it is more important than ever for capital gains tax savings.

The 1031 Exchange and 1031/TIC Exchange are also powerful concepts that continue to grow exponentially in monies invested.

It is my personal opinion that the PAT will be back. I can't say when, or what guidelines it will have once it is re-instated, but there are over 70 years of tax laws supporting its use and value.
It seems, once again, that some people and professionals pushed the envelope too far and took advantage of the intent of the Private Annuity Trust. Let's hope if and when it does come back, it will have the same great advantages, but will also prevent blatant abuse by less than "trust worthy" parties.

I will be updating you as information becomes available.

Warmly,

Paula Straub

ps. If you have questions you would like to see addressed, please email them to me at askpaula@savegainstax.com

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