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Resource Library

Life Insurance and Annuities

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I have so much on these subjects, that I will not even attempt a summary.

2005 - Estate Taxation of Annuities and Lottery Benefits, the Booby Prize

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A version of this article was published in Estate Planning Magazine. I co-authored it with Bob Goff, an outstanding attorney from Witchita Falls. We had both represented clients who had won the lottery and we both knew of a little discussed problem: the estate tax can exceed the value of the annuity, and that is only part of the problem.

2005 - What You Should Know About Your GRAT

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GRATS are a special kind of grantor trust. GRAT is the acronym for Grantor Retained Annuity Trust. Under such a trust, the grantor establishes an irrevocable trust for his or her beneficiaries, and retains the right to an annuity for a term of years. The value of the annuity is subtraced from the value of the gif of the remainder. Values are determined under rates that are published monthly and are designed to be reflective of the true economic value of the annuity at the time the trust is established. Say, you put $10 million in a trust and retain the right to an annuity of $200,000 per year for 10 years. The value of the remainder is zero, and probably will be zero. But what if you invested the trust in Wal-Mart stock at a time when it was trading for $10 a share, and during the third year of the trust the value went to $1000 a share and stayed there. Then the remainderpersons would get a large gift with no transfer tax associated with the transfer at all.


Can you see why GRATs are popular? Can you see why future legislation restricting the use of GRATs might be inacted? Acting quickly to take advantage of this technique while you can could be a good idea.


1999 - Annotated Annual Withdrawal Trust (Crummey Trust)

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This is a very popular type of trust. It is primarily used as a means of making gifts of the annual gift tax exclusion amount to a trust, without having the gift taxed or counted against your applicable death tax exclusion. It is very common to have this type of trust invest in life insurance with the annual gifts used to pay the premiums. The tax treatment of these trusts is very convoluted and often uncertain, and keeping one of these trusts qualified takes some work. I drafted a model trust, and then annotated it with footnotes explaining why the provisions in it are there and what tax issues are associated with them. I am somewhat proud of this article, and it is not that far out of date, despite having been prepared for a State Bar of Texas Professional Development Seminar in 1999.

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the Texas Board of Legal Specialization since 1983

These materials are not meant to and may not be relied upon, but are published for discussion purposes only.  Rule 7.04(b) disclosures.

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