Law Offices - Kenneth D. Sisco, Attorney - Personal Information
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Last Updated: July 6, 2008 E-Mail -- protect@action-assetprotection-services.com
OFFSHORE PLANNING SEMINAR -- Intensive examination of offshore planning and Asset Protection Techniques. DETAILS
CLICK HERE for The Ultimate Asset Protection Tool The ultimate strategy for utilizing foreign trusts, foreign corporations, private annuities, limited partnerships and more.Reduced Fees for Foreign Planning -- If you are interested in Foreign Trusts, Foreign Corporations, or foreign planning and strategies in general, and you are in a position to take action before August 15, 2008, you will be pleased to note that I am prepared to offer substantial fee reductions for foreign planning prior to that date. Please see Announcement |
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Effect of I.R.C., Section 684 on Private Annuities – None!! Recently I received an inquiry as to the effect of New I.R.C. Section 684 on Foreign Trusts and Foreign Private Annuities. This section took effect on August 5, 1997, and imposes a capital gains tax on the transfer of appreciated assets to a foreign estate or trust. In a nutshell the effect is none. Section 684 was adopted in conjunction with the repeal of I.R.C. 1491, which had imposed a 35 percent excise tax on transfers of appreciated assets to foreign estates or trusts. Prior to the enactment of Section 684, I was frequently asked what the effect of Section 1491 was on Private Annuities. The answer there too was none; the reason being that transfer of assets in exchange for an annuity is characterized as a sale. Since it was a sale and not a gratuitous transfer, there was no excise tax. This was confirmed in IRS Revenue ruling 78-356. The bottom line is that, yes, a transfer of appreciated assets to a foreign corporation in exchange for an annuity will result in the imposition of a capital gains tax; but not because of Section 684. It has always been so. The magic is in the details as to how that capital gain is taxed. For example, assume a person 50 years of age sells a piece of real property with a fair market value of $100,000, for which that person paid $50,000. The person will realize a capital gain of $50,000 and will incur a capital gains tax of $10,000. ($50,000 x 20%= $10,000). Now assume that same person, instead of selling the property on the open market, sells it to a foreign corporation in exchange for a $100,000 annuity. There will be no capital gains tax on the sale, but there will be a capital gains tax computed into the annuity payments. Annuity payments are computed according to the annuitant's age and the IRS' mid term interest rate. For a person 50 years old the annual annuity payment would be $8,692.55, or $724.38 per month, for the rest of the annuitant's life. That annuity payment of $8,692.55 will be taxed as follows: $1,789.55 No tax – return of capital. $1,789.55 Taxed at capital gains rates – $357.91 $5,113.45 Taxed at ordinary income rates The difference is obvious. Instead of paying $10,000 in capital gains taxes the first year, the annuitant pays a capital gains tax of only $357.91. The difference of $9,642.09 can be put to work in investments. If invested at only 4% return, the income will be enough to pay the annual capital gains tax. Magic? Nope, just good planning. Copyright ©1998 |
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