Assets we own that have appreciated in value make us tremendously happy. The taxes we pay on these gains make us tremendously unhappy. If you own appreciated assets such as real estate, business, fine art, jewelry, planes, boats, or even a race horses, you face a large tax bill if you sell these assets and do not plan properly. However, there is finally a way to sell off almost every appreciated asset ranging from real estate to collectibles without paying hefty capital gains taxes using a powerful, tax-efficient selling resource called the Private Annuity Trust.
Not only is the Private Annuity Trust an ideal way to avoid capital gains taxes, it's also one of the most secure asset protection tactics offered today. The Trust cannot be sued for the value of your personal property or real estate. Securing your valuables in a trust is a critical piece of the financial puzzle for any type of investor, and the Private Annuity Trust has the added benefit of allowing you to avoid capital gains taxes when property is sold.
The Private Annuity Trust will also allow you to pass all assets left in the trust when you pass away to your beneficiaries completely free of estate taxes and probate fees. Who's using The Private Annuity Trust? Private Annuity Trusts have traditionally been utilized by real estate investors, but even in this circle, the Private Annuity Trust is a new concept for many. The Wall Street Journal recently ran an article about various ways to defer capital gains tax and received an enormous number of inquiries asking for further information about the details of Private Annuity Trusts.
This method of deferring capital gains on real estate is gaining momentum, but many people still don't realize that Private Annuity Trusts can also defer capital gains on property such as fine arts, jewelry, and other valuables. How the Private Annuity Trust Defers Capital Gains Taxes Legally Let's assume that Jim, a 45 year old man, owns a collection of fine art that will net him $5,000,000 once sold. If Jim were to sell his art collection tomorrow without a Private Annuity Trust, he could be responsible for paying a large amount of capital gains tax on his profit, potentially creating a $1,000,000 tax bill! Had he transferred ownership of the property into a Private Annuity Trust before selling, he could have paid $0 in capital gains taxes this year. A Private Annuity Trust is designed to pay the owner of the trust a special annual payment, or annuity, over the course of his or her lifetime. Capital gains taxes on the earnings from the property sold are still due on the sale of the asset, but taxes aren't due until the money is taken out.
The seller of the asset is able to "stretch or spread" his or her taxation over his or her entire lifetime without any interest or penalties from the IRS. This gives investors tremendous financial power, and flexibility - if they don't need the income from the Trust right now, they can defer payments, and not begin paying taxes until they decide to take the income. The amount of the annuity payment is determined by a number of factors determined by the IRS.
A very simple estimation of the program states that if Jim's life expectancy is another 40 years, he will receive annual payments of 1/40 of the value in the trust plus interest as calculated by the IRS. This means he will only be responsible for 1/40 of the capital gains tax from the sale of the property each year, which means that he will have more of his profits invested, and working for him, creating financial security for the future. A Smart Way to Protect Your Assets and Grow your Wealth The Private Annuity Trust isn't just beneficial when you sell your property, but also offers long term protection of your assets from lawsuits, liens, or any other threat to your investments. You can use the money gained from selling to reinvest and continue to grow your wealth. In the previous example, Jim can use the trust to buy new art-or any type of investment property, watch it appreciate, and then sell the property and defer the capital gains taxes again, by placing it in his Private Annuity Trust. If you're a collector of fine art, jewelry, planes, boats, race horses, or anything of value, you owe it to yourself to look into the benefits of the Private Annuity Trust.
There is no minimum or maximum value for property that can be transferred into a Private Annuity Trust. The Trust structure, as a planning tool, is a resource that can help you pass wealth to generations of your family, without worry about losing large chunks to taxes at each transfer. For many investors, it may be a key to safe, smart, investing.
Author is a writer for QFN who specialize Private Annuity Trusts. For more information you can visit http://www.QAPlan.com.
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