Sponsored by Jackson Private Wealth & Trust
Many investments are available for use in trusts, including corporate and municipal bonds, stocks, mutual funds, separately managed accounts (SMAs), and annuities. However, the annuity option is sometimes overlooked by financial professionals and trustees. Irrevocable trusts, which are treated as their own taxable entity, can benefit from the same features that individuals find in annuities: possible tax deferral,* income control, and diversified investment options.
Unique Trust Challenges
Trustees face challenges today from volatile markets and historically low interest rates. But trust requirements don’t change with the markets. Trustees still need to follow the requirements of the trust and try to meet beneficiary expectations of income, growth, preservation of capital, and control of costs and taxes. Annuities can help address these concerns.
Dual Trust Obligations
Many trusts are set up to benefit individuals who receive income from the trust and those who receive assets when the trust dissolves. Juggling these competing interests can be difficult. An annuity can help a financial professional with dual trust obligations through income control and tax efficiency.
Income Control and Tax Efficiency
In some cases, current investment income can be the last thing a trust wants or needs; this is because income retained in the trust is subject to comparatively higher trust income tax rates. Income can be passed to beneficiaries to lessen the trust tax effect, but these distributions reduce the size of the trust and can impose an added income tax burden on the beneficiary. For irrevocable trusts, passing income from the trust to the income beneficiary moves funds that are outside of an estate back into a potentially taxable estate.
An annuity can provide the trustee with control over the recognition of income, which is a taxable event. Many trust-owned annuities are eligible for tax deferral. With a tax-deferred annuity, any portion of trust assets that benefit from tax deferral are not subject to annual taxation for capital gains, interest, or dividends. As a result, trustees can avoid tax-motivated distributions, which can allow the trustee to minimize income distributions while allowing any earnings to accumulate on a tax-deferred basis.
Efficient Asset Allocation
When a trust is initially funded, the asset allocation is typically based on the terms of the trust, its long-term objectives, and the current economic environment. Over time, however, the allocation of the trust assets may have to be changed or modified. For many investment vehicles, a reallocation of assets may result in additional transaction costs, and the sale of one asset to buy another may trigger capital gains taxation. By using a variable annuity, a trustee can mitigate additional transaction costs and reallocate the assets without triggering taxable events.
One question we often hear is, “Can trusts own annuity contracts?” The answer is yes. Most trusts are eligible to own nonqualified annuity contracts. Some common trust types include:
- Credit Shelter Trust (CST) (also called Bypass Trust or B-Trust)
- Special Needs Trust (SNT)
- Irrevocable Family Trust
- Generation Skipping Trust (GST)
- Charitable Remainder Trust (CRT)
- Charitable Lead Trust (CLT)
- Qualified Terminable Interest Property Trust (QTIP Trust)
- Living Trust
Variable annuities are long-term, tax deferred investments, involve investment risks and may lose value. Earnings are taxable as ordinary income when distributed and may be subject to a 10% additional tax if withdrawn before age 59 ½.
With Jackson Private Wealth, you can enjoy:
- A fee only advisory platform (no commissions, no withdrawal charges).**
- 140+ institutional share class investment options from well respected managers.
- Data feeds to power your trust software and the ability to model our products in planning software.
For more information, or to schedule a meeting, visit Jackson.com/private-wealth.
*Tax deferral offers no additional value if an annuity is used to fund a qualified plan, such as a 401(k) or IRA, and may be found at a lower cost in other investment products. It also may not be available if the annuity is owned by a legal entity such as a corporation or certain types of trusts.
**A contract charge and subaccount charges apply.
Before investing, investors should carefully consider the investment objectives, risks, charges and expenses of the variable annuity and its underlying investment options. The current contract prospectus and underlying fund prospectuses, which are contained in the same document, provide this and other important information. Please contact your Internal Wholesaler to obtain the prospectuses. Please read the prospectuses carefully before investing or sending money.
This material was prepared to support the promotion and marketing of Jackson® variable annuities. Jackson, its distributors and their respective representatives do not provide tax, accounting or legal advice. Any tax statements contained herein were not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal, state or local tax penalties. Clients should contact their own independent advisors as to any tax, accounting or legal statements made herein.
Variable annuities are issued by Jackson National Life Insurance Company® (Home Office: Lansing, Michigan) and in New York by Jackson National Life Insurance Company of New York® (Home Office: Purchase, New York). Variable annuities are distributed by Jackson National Life Distributors LLC, member FINRA. These contracts have limitations and restrictions. Jackson issues other annuities with similar features, benefits, limitations and charges. Discuss them with your financial professional or contact Jackson for more information.
Jackson Private Wealth Variable and Fixed Annuity (VA790, ICC17 VA790, VA790-T1, ICC17 VA790-T1) is issued by Jackson National Life Insurance Company (Home Office: Lansing, Michigan) and distributed by Jackson National Life Distributors LLC, member FINRA. This contract has limitations and restrictions. Jackson issues other annuities with similar features, benefits, limitations and charges. Contact Jackson for more information.
Jackson is the marketing name for Jackson National Life Insurance Company and Jackson National Life Insurance Company of New York. Jackson National Life Distributors LLC.
This piece is meant to provide education on the content being presented and is intended for an audience with a basic understanding of the financial industry. It is not intended for use with the general public.