Deferring Taxes With a Private Annuity Trust

People are reluctant to sell appreciated assets (Real Estate, Stocks, etc.) due to tax consequences. Taxes can be deferred via a 1031 exchange, or installment sales, but may not be appealing options. One lesser known strategy is using a Private Annuity Trust, according to professionals at Davis & Company, a Diamond Certified CPA and Financial Planning firm.

The process begins with the transfer of the property to a previously established Private Annuity Trust. The Trust pays the owner for the property, not in cash, but with a special payment contract called a private annuity that stipulates that payments from the sale go to the owner for the rest of his or her life, essentially in installments. The Trust then sells the property and invests the proceeds to make the annuity payments. Professionals with expertise in this area should be retained to set up such arrangements, as any mistake may have serious legal and tax consequences.