She originally got the trust in 99 in Oregon and then moved to PA later on. I think because of estate taxes. As far as I know, the beneficiary of the annuities are the trust, and the trust has the beneficiaries listed.Why does she have a revocable trust? They're not commonly used in Pennsylvania. Probating a Will in Pennsylvania is not difficult, expensive or burdensome.
Assuming the annuities have beneficiaries, which is usually the case for investment-type annuities, they aren't probate assets. Instead, they pass to the named beneficiaries. So it shouldn't matter whether they're in a revocable trust.
The more important question is why she has these annuities? There's often no good solution to an investment-type annuity. If she keeps them, she'll continue to incur the expenses (which are often substantial), and she'll continue to convert the income and gains to ordinary income, with no basis step-up at death. If she cashes them in, she'll accelerate the income.
Her FA at Wells Fargo told her about them and she got the annuities over 15 years ago. Whatever they discussed I am not aware of, but I assume it was the double death benefit bonus on the annuity that doubled what she put in as the death benefit, as that is what she told me several times when I asked what the annuities are for.
When you say no basis step up...does that include all interest gains and the death benefit 200% bonus do you know?
Most of the time, wealthy people create irrevocable trusts for assets above the inheritance tax limit. A revocable trust does nothing and the annuity will be paid to beneficiaries as ordinary income instead of getting a step up in basis. I can't think of any use case to justify holding annuities in a revocable trust.
Ok do you mind explaining what the step up in basis means here?
So when she passes, (with the annuities in the trust) the annuity death benefit will be taxed as ordinary income to the beneficiaries...and any gains from the time she got the annuities to the time she dies, the beneficiaries will owe taxes on the entire gains of the annuities, is that correct?
I hear you. At this point however, Im not sure if she'd even be willing to cash these out, its been a long time and she trusts her FA completely. No, her tax rate is higher.I’m also not a fan of holding indexed annuities in anticipation of the death benefit. She’s likely earning less than she could earn in other fixed income assets, especially if she’s out of the surrender charge period.
Is her tax rate lower than that of her beneficiaries? If so, she might be well served to surrender the annuities, pay the taxes, and reinvest in an asset that will get a step up at her death.
Im getting the idea that annuities dont get a step up in basis?
Her long time FA sold these to her 15+ years ago. I'm not sure of the specific reasons, but i'm assuming it had something to do with the death benefit doubling. She got a 200% bonus from the money she put in, which would be the death benefit. She had a cancer scare around that time so I think she was trying to prepare for the worst. Luckily she beat it.Another one to ask, why fixed index annuities? And I already know the answer. Because the salesman hyped the downside protection. These are great deals for the salesmen.
Statistics: Posted by irasymn10 — Thu Oct 03, 2024 9:50 pm — Replies 5 — Views 170