Annuity Trust: A Comprehensive Guide to Its Legal Definition and Uses
Definition & Meaning
An annuity trust is a type of trust where the trustee pays a fixed amount annually to the beneficiaries for their lifetime or for a specified number of years. After the last beneficiary passes away or the term ends, the remaining assets in the trust are either transferred to a qualified charity or retained for charitable use. The annual payment to beneficiaries must be at least five percent of the initial fair market value of the property placed into the trust by the donor. These trusts must adhere to the requirements set forth in the Internal Revenue Code.
Legal Use & context
Annuity trusts are primarily used in estate planning and charitable giving. They allow individuals to provide for their beneficiaries while also supporting charitable organizations. These trusts can be beneficial in tax planning, as they may offer tax deductions for contributions made to qualified charities. Legal professionals often assist clients in setting up these trusts, ensuring compliance with tax laws and regulations. Users can also manage some aspects of annuity trusts using legal templates from US Legal Forms.
Real-world examples
Here are a couple of examples of abatement:
Example 1: A donor establishes a charitable remainder annuity trust, contributing $100,000 in assets. The trust pays $5,000 annually to a family member for their lifetime. After the family member's death, the remaining assets go to a local charity.
Example 2: A person creates a grantor retained annuity trust, placing $200,000 in property into the trust. They receive annual payments of $10,000 for ten years, after which the remaining property is transferred to a designated charity. (hypothetical example)