Many clients wonder if their non-qualified annuities are “safe” from their creditors and predators. The quick answer is no. Not only can general creditors and predators gain access, the loss of an annuity to long-term care cost is common. In either event an annuity is an asset that is subject to the risk of creditors. The most common strategy, to avoid loss of annuities to creditors is to annuitize them. While this protects the annuity, it takes away the value of the underlying asset and converts it to an income stream which also can be attacked.
An annuity can be protected from nursing homes and general creditors, without annuitizing it, by putting it into an irrevocable pure grantor asset protection trust. It permits the grantor to be trustee retaining full control in management of the annuity. In addition, the client gives up minimal rights that ensures full protection underlying annuity without having to annuitize it or liquidate it. Should the client ultimately need the income stream generated by the annuity they’re still given the right to annuitize or take periodic distributions without annuitizing it. See full legal analysis and client benefits of iPug™ protection trust.
The beauty of utilizing an IPUG trust is by changing the ownership of the annuity to the trust instead of the client, there is no tax impact as an irrevocable pure grantor trust is a grantor trust for income tax purposes and utilizes the client’s Social Security number as its tax I.D. Under the tax law, no transfer of ownership has occurred and no tax generated, but, asset protection is achieved.
The distinctive planning strategy continues by naming a proper beneficiary of the annuity, not just changing the ownership. As a standard practice the trust should be named beneficiary to ensure all of the protections granted by the trust. In addition, it allows distributions to be made to beneficiaries other than the grantor, to ultimately achieve the goals of the client for their estate plan. Protecting clients annuities without causing taxation and not having to subject clients to early termination penalties are great benefits of transferring annuities to an iPug™ trust rather than having to liquidate or annuitize them.
If you're interested in a FREE webinar on iPug Business Planning click here to register today to:
- Learn the difference between General Asset Protection, DAPT Protection, Medicaid Protection and iPug® Protection
- Review a comprehensive outline of the 2 primary iPug® Business Protection Strategies
- Learn why clients choose single purpose Irrevocable Pure Grantor Trusts™ over LLCs
- Learn how it all comes down to Funding
David J. Zumpano, Esq, CPA, Co-founder Lawyers With Purpose, Founder and Senior Partner of Estate Planning Law Center
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