The June 1, 2006, Wall Street Journal had an article on “private annuity trusts” in its Personal Finance Section. I have already received inquiries about using private annuity trusts as an asset protection tool in Florida inasmuch as Florida statutes protect annuities from creditors claims. A reader asked if he could protect non-exempt money by funding a private annuity trust. The article described private annuity trusts as a tool to defer capital gains from capital assets such as real estate. The owner creates a trust and then transfers the appreciated asset to the trust in exchange for a annuity.
The private annuity trust may provide asset protection to shelter proceeds from the sale of appreciated assets. If the assets are sold outright the funds received could be vulnerable to creditors. However, if an annuity trust is used to defer income tax then not only is the annuity exempt but the payments once received from the annuity trust remain exempt in the hands of the seller/debtor. Florida protects not only annuities but also proceeds of an annuity so long as they are traceable back to the annuity.
On the other hand, you probably could create a private annuity trust and simply dump cash or unappreciated assets in the trust for asset protection because that would have no demonstrated income tax benefit. Transfers of cash or unappreciated assets to a private annuity trust would probably be subject to reversal as a fraudulent conveyance.
The private annuity trust appears to have asset protection as well as income tax benefits for owners of highly appreciated assets.
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