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Author: xfool39 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 5741  
Subject: annuity tax avoidance Date: 3/16/2003 1:17 PM
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was hoping somebody could comment on this particular inheritance strategy, suggested by an advisor.

Mother-in-law's trust has two deferred variable annuities--one three times larger than the other. The total trust has experienced a gain of 400%, so the tax on distributions will be high on her death. She is approaching 80.

Advisor suggests converting smaller annuity to an immediate annuity, and using its regular payments to buy life insurance on mother-in-law. Enough will be withheld from distributions to cover any tax on the immediate annuity's gains, so that mother-in-law will not have to worry about paying addition annual tax (just a paper transaction. The insurance benefit will be sufficient to more than cover the tax that would have been levied on both original deferred annuities when it's eventually distributed. Life insurance benefits are non-taxed.

Of course the advisor probably makes a healthy commission on the transactions. The families involved are looking to me to explain and endorse the idea.

Any thoughts?

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