Key Benefits of Using Annuities in Trusts
1. Tax-Deferred Growth and Flexible Tax TimingOne of the greatest advantages of annuities in a trust is tax deferral. This means the gains inside the annuity grow without being taxed right away.
Taxes only apply when money is taken out, giving the trust more control over when and how much is taxed. If a trust owns an annuity and acts as an agent for a beneficiary, the income can be taxed at the beneficiary’s lower tax rate rather than at the typically higher trust tax rate. This setup can reduce the tax impact, leaving more for beneficiaries over time.
2. Protection for the Trust’s CapitalAnnuities can provide protection for the trust’s principal, meaning the initial investment is safeguarded from market downturns. Many annuities offer features like guaranteed minimum payouts or options to limit potential losses, including 100% principal protection.
This can be especially valuable in a trust, as it helps protect the wealth set aside for beneficiaries while still allowing for growth.
3. Growth Opportunities with Market-Based OptionsAlongside protection, annuities offer the chance to grow assets by linking to the market. This means the trust can benefit from market gains without being fully exposed to the risks of direct stock investments.
Some annuities let trustees participate in the market’s growth potential while maintaining safeguards against losses, making them ideal for trustees who want growth without too much risk.
4. Tax-Free Rebalancing Within the AnnuityAnother advantage of annuities is the ability to adjust the investment mix without triggering taxes. Trustees can make changes to the annuity’s portfolio—such as shifting between different types of investments—without creating taxable events.
This flexibility allows trustees to keep the trust’s assets aligned with its goals over time, adjusting the balance as market conditions or the needs of beneficiaries change.
5. Flexible Income Options for BeneficiariesAnnuities offer a range of ways to provide income to beneficiaries. Trustees can choose a setup that offers regular, lifetime payments or adjust payouts according to specific needs.
This flexibility helps ensure that beneficiaries receive support over time, whether as a steady income or in amounts tailored to their life stages and goals.
Who Benefits Most from Funding Trusts with Annuities?
Funding a trust with an annuity is especially valuable for trusts designed to benefit individuals aged 50 to 70, trustees seeking a secure, growth-focused investment, or trustees aiming to reduce taxes on behalf of beneficiaries.
This approach also works well for those who want flexibility in managing and timing distributions while protecting the trust’s capital and maintaining potential for market-based returns.
Funding trusts with annuities offers a range of benefits, including tax deferral, capital protection, growth opportunities, and flexible income options.
Annuities are a smart choice for trustees looking to support beneficiaries while efficiently managing taxes and investment risk.
By combining tax efficiency with protective features and growth potential, annuities can play an essential role in a well-structured trust, supporting beneficiaries’ needs across generations.
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Sources*:
National Association of Estate Planners & Councils
*These organizations are not affiliated with IFG. IFG does not endorse, support, or recommend any information that is not provided by its affiliates or representatives.
Disclaimer:
Information provided is for informational purposes only, and does not constitute an offer or solicitation to sell, a solicitation of an offer to buy, any security or any other product or service. Accordingly, this document does not constitute investment advice or counsel or solicitation for investment in any security. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation.