Private Annuity Trust

Private annuity trust is actually a 'capital gain program' that aids with both depreciation re-capture costs and high-capital gains. This program is advantageous to owners of residential or commercial real estate properties who do not need money immediately from the sale. With several individuals paying high tax amounts on highly valued properties, private annuity trust proffers a choice to save a fair amount of money.

How does a Private Annuity Trust Work?

The owner sells his property to a 'trust' by moving ownership before the actual sale of property. The payment of trustee is in the firm of private annuity agreement, which is actually setup to make pre-determined number of 'payments' for a pre-calculated, specific amount for rest of the owner's life.

The payment for annuity is determined using a method which employs age of the owner, amount of proceeds of sale, and interest rates set by the 'IRS'. The proceeds from properly sales are then seized in 'private annuity trust' and can be put in by trustees. The payments are made to owners for an agreed upon and predetermined amount. Also, any income that the trust makes should be kept for the beneficiaries of the trust.

The owners are taxed on payments from annuity only, instead of the entire amount at the time of sale. Payments don't have to start on immediately, making 'private annuity trust' a smart option for retirement. The owners can have tax benefits, as long as payments start by the age of 70.

Key Advantages of Private Annuities Trust

Private annuity trust is in fact a tactical yet simple tax planning approach that saves thousands of dollars in tax-liabilities, while adding to the worth of your assets due to tax deference and combination of gains and principal. Some most common trust advantages include:

• Pays no depreciation re-capture taxes at the time of sale
• Defers capital-gain taxes unpaid upon time of sale
• Creates a lifetime income 'stream' for mutual lives
• Eradicates estate taxes unpaid upon the death of taxpayer
• Maximizes Medicaid planning advantages for utmost asset protection
• Does away with property management needs
• Keeps away from expenses and holdups of probate Moreover, private annuity trust also offers asset safety against lawful disputes.

As of October 2006 the IRS ruled that the PAT is no longer a valid capital gains tax deferral vehicle. Those who utilized the PAT prior to the IRS ruling are grandfathered in and will continue to recognize its tax deferral benefits. Prior to October 2006, PAT's were in high demand and very attractive to sellers of highly appreciated real estate in the United States. A PAT would allow the owner of an investment property to defer up to 100% of the taxes that were due without having to buy another property. This is important to understand because all of the gains or appreciation on a primary residence over $250,000 for a single person, and $500,000 for a married couple will be taxed if a PAT is not used.

Who should Consider Buying Private Annuity Trust

A business owner, who wishes to retire and give control to a family member or key employee devoid of facing large income tax-liability, can think about purchasing private annuity trust. Furthermore, if you are an investor who wishes to eliminate sized asset from estate, or you're a grandparent who wishes to give some assets to his/her grandchild, then you can opt to buy annuity trust. Those who wish to change non-income creating real-estate into the assets that give regular income devoid of having to pay immense capital gain tax can also consider buying 'private annuity trust. Above all, a private annuity trust can aid you to cut down on taxes (gift, estate and income), get a fixed income and expand your portfolio. I would recommend consulting with your CPA and financial advisor/agent prior to purchasing a PAT to consider if a PAT is right for you and your taxes.

Private Equity Professionals and Carried Interest - Tax Treatment Now and in the Future

Carried interest is the profit earned on private equity investments by a deal-maker in a private equity house. Often known as carry, it allows these professionals to receive up to 20% of the profit from a company they sell. The carry can be a significant portion of a private equity professional's total compensation.

Private equity firms are typically structured as investment partnerships where the general partners manage the firm's fund on behalf of the limited partners (the investors). The firm then uses the fund to purchase an equity position in a number of companies. When these equity investments are sold, the investors typically receive 80% of the profits and the managers collect the remaining 20% (known as the carried interest).

Current Treatment - Carried interest profit is eligible for capital gains taper relief, which is why it is currently taxed as a capital gain at 15% for both investors and managers. Investment partnerships have long maintained this lower rate.

Debate and Uncertain Future Outcome - In recent years, lawmakers have been pushing to tax carried interest as ordinary income, which would set a much higher rate than 15%. Supporters of higher taxing of this interest, such as the Coalition for Tax Justice, have argued the issue is tax fairness. A bill proposing a change would require fund managers to treat carried interest as ordinary income received in exchange for the performance of services to the extent that the interest does not reflect a reasonable return on invested capital. The bill would continue to tax carried interest at capital gain tax rates to the extent that the interest reflects a reasonable return on invested capital. President Obama's 2010 released budget proposes to raise taxes on carried interest to more than 39%, effective 2011.

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