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Private annuity may be the answer in estate planning

Do you have an estate that is worth more than the cap for the amount of gift and estate tax exemption? If you have an estate of any size, a private annuity may be the way to go to avoid taxes that your heirs will have to pay.

A private annuity transfers property to your children or to an organization or even outside friends in exchange for their unsecured promise to make annual payments to you for the rest of your life. It is said to be private because the annuity is provided by you, an individual, instead of a commercial company.

The amount of the payments will be based on the property's value and the IRS prescribed interest rate.

A good way to think about an annuity is to see it as a sale rather than a gift. As long as the value of the annuity payments are approximately the same as the property's market value, there is no need for gift tax on the transaction.

A private annuity gives you the peace of mind that a fixed income stream can provide. This enables you to convert non-income-producing property to a source of income.

This is not easy to do and you will need to contact an experienced attorney who can walk you through the steps to making this happen. He or she will have the knowledge based in the law that will help you know that what you are doing is legal and allowable under New York law.

One more potential benefit is that the obligation for the transferee's annuity payments ends when you are no longer here. If you die before the entire amount is paid out, your family will have a windfall.

Source: Americal Institute of CPAs, "Wealth Management, Tax Planning and Private Annuities," June 12, 2015

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