DEFERRING CAPITAL GAINS TAXES WITH THE PREMIER VI PRIVATE ANNUITY TRUST^©

The Private Annuity As A Gift & Estate Tax Strategy:
An important use of a Premier VI Private Annuity is in the transfer of large estates to the next generation free of gift and estate taxes. Many people think the Tax Act of 2001 eliminated gift and estate taxes. But federal estate taxes are scheduled to remain in place through 2009, and then be somewhat replaced by a partial loss of step-up in basis. Gift tax exemptions are scheduled to increase, but the actual gift tax was not eliminated by the 2001 Tax Act. (For complete info on estate and gift taxes, see www.nafep.com, “Estate Planning Under 2001 Tax Act”.) Further, most states have their own estate or inheritance taxes. These were not eliminated and they can be quite substantial.

The private annuity process results in an exchange of the annuitant’s property for a lifetime annuity income, with that income being based on the full value of the property. The annuitant will receive all the principal and all the accrued interest under actuarial assumptions. In other words, the annuitant is given “full and adequate consideration” for the property. Therefore, the property transfer to the trust is not a gift, not subject to gift taxation. Likewise, when the annuitant dies there are no estate taxes because the property was sold, and the annuity expires null and void at that point. So the private annuity arrangement is a type of insurance policy for the annuitant's gift and estate tax planning. As long as the annuitant is alive he will continue to receive his payments to help with living expenses, but the balance of the annuity property is out of his estate immediately when he dies.