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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12468
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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What is the best way to minimize tax consequences?

Customer Question

A non-qual. annuity has matured and the Ins. co. is asking for a settlement method. It is in a Revocable Living Trust and the Owner/Annuitant is the trustee. She doesn't need the money. She is 97. What is the best way to structure the settlement to minimize the tax consequences? She has 2 sons that will inherit her estate. No distributions have been taken.
Submitted: 11 months ago.
Category: Tax
Expert:  Lane replied 11 months ago.
I would look at a period certain with refund. At 97, her life expectancy as per the mortality tables is only three years. So, a life payout simply pays it all out very quickly. A period certain (longest option as per the contract) with refund, will allow a payment that is partially return of principle (so not taxable), defer taxation if possible, but still retain the present value of what’s not distributed for the beneficiaries.
And do be sure that she has a beneficiary on file – otherwise the estate, or the trust becomes the beneficiary (at trust rates – trusts get to the 39.6% bracket at $12,000 or so, where individuals get to 39.6% at $400,000+(.
If she weren’t forced to take a settlement option simply letting the beneficiaries stretch out over their life expectancy when they inherit would maximize the deferral of taxes, but that’s not an option now.