Don't Hold Annuities In Trusts - Well, Maybe It's Okay


Section 72 of the Internal Revenue Code generally provides favorable deferral of income tax for qualified annuities. However, Code Section 72(u) disallows such favorable treatment when the annuity is owned by someone other than a natural person, such as a trust. An exception to the exception allows a trust to hold the annuity as an agent for a natural person.

A recent private letter ruling has employed the "agent for a natural person” exception to allow use of the trusts. The subject ruling allowed the trust to purchase annuities with the remaindermen as the annuitants. Another individual was the current beneficiary of the trust. To the extent that distributions were made from the annuity prior to the death of the current beneficiary, those proceeds would be payable to the trust. After the death of the current beneficiary, the annuity policies will be distributed to the remaindermen (each receiving his or her annuity for which he or she is the annuitant).

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Charles (Chuck) Rubin
Gutter Chaves Josepher Rubin Forman Fleisher P.A.

A tax and business attorney who assists clients in preserving & enhancing individual, family &... View Profile »

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