[quote=luchabee]I am mostly passing on information from advisors I have heard on the radio (so check with a competent tax and legal advisor, if interested, like Rich), but variable annuities do have a place for some very high-income earners, who have maxed out their contributions to qualified retirement plans. And yes, they are complicated with big commissions for the advisor, no doubt. However, the tax-deferral is what is sought in these cases and you will have to pay to get it.
I’m sure Rich would be the one to talk to on these insurance planning issues. Of course, anyone should talk to a very competent and experienced tax advisor, if they are making this kind of money.
Charitable trusts are more for older folks (though they can make deferred payments later on), who have long-term capital assets and would like to sell them for retirement income.
The charitable trust allows them to sell any capital asset tax-free, even real estate, stocks, etc. (They will pay taxes on future income payments, but the trust can grow tax-free.) The person funding the trust will then select a payout rate of say 7% to 15% per year on the full value of the asset without any CG taxes being paid.
The donors then have to have at least 10% of the asset value go to the charity after their lives, but they will get an immediate deduction for this gift they will be making years down the road (not bad).
They are flexible tools in terms of passing income to children and have estate tax savings, too, if applicable. Also, the assets don’t have to be that large (maybe a nice second home?)so a regular Joe can save on taxes and make an impressive gift to the church, hospital, community center, etc. He might even get a building named after him, as well. Any estate planning firm, comprehensive financial advisor, or large charity can help with setting them up.
One limiting feature right now, of course, is that some of the significant benefit is that you don’t have to pay CG taxes initially. As a result, given declines in real estate and stocks, most of these assets must have been obtained many years ago to have a lot of appreciation. So, we are talking about older people mostly. On the other hand, especially for seniors who are looking to leave a legacy to charity and possibly their kids, a trust can be an ideal way to accomplish a lot of goals. [/quote]
Thanks for the info. A couple of years ago, when we grinded through the numbers, it seemed for us at leastbuying a separate termed life insurance + tucking the money away post tax was on par with the VAR plans, particularly since the VAR’s had really big fees to the insurance co….The other drawback was that the VAR plans seemed to have very limited investment choices in terms of funds, and if there was a self directed component, the trading commissions were pretty significant. I guess it didn’t make sense for us because we weren’t rich enough. And frankly, given how the equities markets turned out, it was probably a good thing we didn’t do a VAR at the time, because again I believe the VARs we looked at were heavily biased toward stock/mutual fund investing. However, talking to various financial planners about VARs, they seemed to confirm what you say about folks who are wealthy and need a tax haven.
The other irony was back then, we were deciding between MetLife and AIG…Good thing we picked MetLife, in retrospect 🙂
