Avoiding Trusty Tax Traps

Bruce A. Tannahill, the director of business and estate planning for Western Reserve Life Assurance Co. of Ohio, in St. Petersburg, Florida, has recently published his article entitled Avoiding the Tax Traps When a Trust Owns or Is the Beneficiary of a Nonqualified Annuity, in Prob. & Prop., July/Aug. 2006, at 23.
   

Here is the conclusion of his article:
   

Having a nonqualified annuity contract owned by a trust, regardless of whether the trust is revocable or irrevocable or a grantor or non-grantor trust, can result in unintended income tax consequences for the trust, the trust beneficiaries, and the grantor of the trust. Careful attention to the terms of the trust, the provisions of the annuity contract (which may not be consistent with the provisions of the trust), and consideration of whether having the annuity contract owned by the trust is the best method of accomplishing a client’s overall objectives should be standard practice whenever a trust-owned annuity is contemplated.