Federal Tax Issues of Employee Plan and Commercial Annuities explores the federal estate, income, gift, and generation-skipping transfer tax aspects of employee plan and commercial annuities.  Written by Edward P. Wojnaroski, Jr., Esq., M.S. (Taxation), CFP®, Williams Coulson Johnson Lloyd Parker & Tedesco, LLC, this Portfolio analyzes

• Timing of Distributions
• Control and Investment Risk
• Method of Distribution
• Frequency of Contributions
• Death Benefit or Survivor Benefit
• Section 2039(a): Includible Interests
• Section 2039(b): Amount Includible
• Former Special Treatment of Annuities Under Statutory Retirement Arrangements
• Applicability of Estate Tax Provisions Other than §2039
• Section 72: Annuities
• Section 83: Property Transferred in Connection with Performance of Services
• Former §101(b): Death Benefits
• Sections 691, 1014: Income in Respect of a Decedent; Basis
• Former §4980A: Tax on Excess Distributions from Qualified Retirement Plans
• Gift Tax
• Generation-Skipping Transfer Tax
• Planning Considerations

The term “annuity” broadly refers to all periodic payments resulting from the systematic liquidation of a principal sum. This Portfolio focuses upon the application of §2039 and other federal estate tax sections to the transfer of interests in employee plan and commercial annuities at death. The analysis then shifts to a review of the income tax aspects of annuities. This Portfolio then applies the federal gift tax sections to the inter vivos transfers of these types of annuity interests followed by a discussion of the generation skipping transfer tax implications. This Portfolio concludes with planning considerations.

Federal Tax Issues of Employee Plan and Commercial Annuities allows you to benefit from:

• Hundreds of hours of original research on specific tax planning topics from leading practitioners in this area
• Invaluable practice documents including tables, charts and lists
• Plain-English guidance from world-class experts
• Real-world and in-depth analysis that lets you explore various options
• Time-saving access to relevant sections of tax laws, regulations, court cases, IRS documents and more
• Alternative approaches to both common and unique tax scenarios

This Portfolio is part of the Estates, Gifts and Trusts Portfolios Library, a comprehensive series containing more than 80 Portfolios, which covers critical transactions in estate, gifts and trusts planning. This highly-regarded resource library offers commentary on a wide range of estate planning topics including: Generation Skipping Tax, Family Limited Partnerships, Charitable Remainder Trusts, Estate Planning for Closely-Held Businesses, Exempt Organizations and Private Foundations, Life Insurance, Valuation, and more.

Detailed Analysis

I. Foundation

A. Scope of Portfolio

B. Introduction

C. Framework

D. Typical Terms

1. Timing of Distributions

2. Control and Investment Risk

3. Method of Distribution

a. Life Annuities

(1) Single Life Annuities

(2) Joint-and-Survivor Annuities

(3) Multiple Annuities

b. Term Certain

c. Refund Annuities

d. Specified Period

4. Frequency of Contributions

5. Death Benefit or Survivor Benefit

II. Federal Estate Tax

Introductory Material

A. Section 2039(a): Includible Interests

1. Statutory Text

2. Legislative Background

3. Congressional Intent

4. Components

a. Gross Estate

b. An Annuity or Other Payment

c. Receivable by Any Beneficiary

d. By Reason of Surviving the Decedent

e. Under Any Form of Contract or Agreement

f. Entered into After March 3, 1931

g. Other than as Insurance Under Policies on the Life of the Decedent

(1) Before DEFRA

(2) DEFRA: Section 7702

h. An Annuity Payable to the Decedent

(1) The Contract or Agreement

(2) Annuity or Other Payment

(3) The Decedent's Interest in His or Her Annuity

(4) Joint, etc., Interests

(5) The Duration of the Decedent's Annuity

B. Section 2039(b): Amount Includible

1. Value of Beneficiary's Annuity

2. Includible Portion

a. Computation

b. Source of Contributions

C. Former Special Treatment of Annuities Under Statutory Retirement Arrangements

1. Identity of the Decedent

2. Nonexcludibility of Benefits Payable to Executor

3. The Enumerated Arrangements

4. Source of the Benefit

5. Contribution Base

6. Retreat from the Original Exclusion; Grandfather Provisions

D. Applicability of Estate Tax Provisions Other than § 2039

1. Section 2032: Alternate Valuation

2. Section 2033: Property in Which the Decedent Had an Interest

3. Section 2036: Transfers with Retained Life Estate

4. Section 2037: Transfers Taking Effect at Death

5. Section 2038: Revocable Transfers

6. Section 2043: Transfers for Insufficient Consideration

7. Section 2053: Expenses, Indebtedness, and Taxes

8. Section 2056: Bequests, etc., to Surviving Spouse

a. In General

b. Power of Appointment Annuity

c. Annuities as Qualified Terminable Interest Property

(1) Qualifying Income Interest for Life

(a) In General

(b) Annuities Arising Under Employee Benefit Plans

(2) Survivor Annuities

(3) Charitable Remainder Trusts

9. Former Additional Estate Tax on Excess Retirement Accumulations

III. Income Tax Considerations

A. Section 72: Annuities

B. Section 83: Property Transferred in Connection with Performance of Services

C. Former § 101(b): Death Benefits

D. Sections 691, 1014: Income in Respect of a Decedent; Basis

E. Former § 4980A: Tax on Excess Distributions from Qualified Retirement Plans

IV. Federal Gift Tax

A. General Rule

B. Annual Exclusion

C. Marital Deduction

D. Disclaimers

E. Valuation

F. Former Law: Gifts of Statutory Plan Interests

G. Section 2012: Credit for Gift Tax

V. Generation-Skipping Transfer Tax

VI. Planning Considerations

Introductory Material

A. Cash Flow

B. Federal and State Income Tax

1. High Income Tax Liability

2. Income Tax Deferred Growth: Variable Annuities

3. Rate of Income Tax

C. Types of Annuities

1. Immediate Annuities

2. Fixed Annuities

3. Variable Annuities

a. Common Situations

b. Diversification

4. Joint and Survivor Annuities

D. Other Options

E. Charges, Sales Loads, Fees, Expenses, and Penalties

1. Charges

2. Expenses, Sales Loads, and Fees

3. Penalties

F. Time Horizon

G. Contractual Guarantees

H. Basis

I. Exchanges: § 1035

J. Asset Protection

1. Medicaid

2. Bankruptcy

3. State Law

4. IRS Levy

5. State Guaranty

K. Mode of Distribution

L. Health Status

Working Papers

Table of Worksheets

Worksheet 1 Excerpts from H.R. Rep. No. 1337, 83d Cong., 2d Sess. (1954) Section 2039, Annuities

Worksheet 2 Excerpts from S. Rep. No. 1622, 83d Cong., 2d Sess. (1954) Section 2039, Annuities

Worksheet 3 Excerpt from S. Rep. No. 1983, 85th Cong., 2d Sess. (1958) 1958-3 C.B. 1074, Estate Tax Exclusion

Worksheet 4 Excerpt from H.R. Rep. No. 1118, 89th Cong., 1st Sess. (1966) 1966-1 C.B. 435, Estate Tax Exclusion

Worksheet 5 Excerpts from H.R. Rep. No. 783, 92d Cong., 2d Sess. (1972) Estate Tax Treatment of Annuities in Community Property States

Worksheet 6 Excerpts from H.R. Rep. No. 298, 93d Cong., 1st Sess. (1973) Tax Treatment of Survivor Benefit Plans of the Uniformed Services

Worksheet 7 Excerpt from H.R. Rep. No. 1380, 94th Cong., 2d Sess. (1976) Changes Relating to Certain Retirement Benefits

Worksheet 8 Excerpt from S. Rep. No. 938 (Pt. 2), 94th Cong., 2d Sess. (1976) Gift Tax Treatment of Certain Annuities

Worksheet 9 Excerpt from H.R. Rep. No. 1515, 94th Cong., 2d Sess. (1976) Estate and Gift Tax Exclusions for Qualified Retirement Benefits (Conf. Rep.)

Worksheet 10 Excerpt from S. Rep. No. 1263, 95th Cong., 2d Sess. (1978) Employee Stock Ownership Plans

Worksheet 11 Excerpt from H.R. Rep. No. 1800, 95th Cong., 2d Sess. (1978) Certain Lump Sum Distributions Excluded from Gross Estate

Worksheet 12 Excerpt from General Explanation of the Tax Reform Act of 1976 Prepared by the Staff of the Joint Committee on Taxation (Dec. 29, 1976) Changes Relating to Certain Retirement Benefits

Worksheet 13 Excerpt from General Explanation of the Revenue Act of 1978 Prepared by the Staff of the Joint Committee on Taxation (March 2, 1979) Estate Tax Exclusion for Certain Lump Sum Distributions

Worksheet 14 Sen. Prt. 169, 98th Cong., 2d Sess., Vol. 1, 312 (1984) Repeal of $100,000 Estate Tax Exclusion for Annuity Interests Created under Qualified Plans

Worksheet 15 H.R. Rep. No. 795, 100th Cong., 2d Sess. 521–522 (1988) Treatment of Joint and Survivor Annuities

Worksheet 16 Comprehensive Example of the Application of Rev. Rul. 2002-62, 2002-42 I.R.B. 710

Bibliography

OFFICIAL

Statutes:

Treasury Regulations:

Legislative History:

Treasury Rulings:

Cases:

UNOFFICIAL

Books and Treatises:

Periodicals:

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