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Follow on Google News | Trusts and Annuities InformationTrusts come in many different forms and are used for many different purposes. Generally, trusts are either revocable or irrevocable, grantor or non-grantor, inter vivos or testamentary, and simple or complex.
By: Dale M. Krause Annuities also come in many different forms and are used for many different purposes. Generally, annuities are either tax-deferred or immediate; fixed, indexed or variable; qualified or nonqualified; When it comes to Medicaid planning the type of trust that is most commonly used is an irrevocable trust. The trust is a Medicaid pre-planning tool in that it must be established, funded, and has five years pass from the date of the last transfer in order to become an effective Medicaid tool. The trust may be established as a grantor trust, giving the grantor the right to its taxable income, but it is not required. If the trust passes all the aforementioned criteria and the grantor later enters a nursing home and needs Medicaid benefits, none of its assets will be taken into consideration - they are deemed not owned by the grantor. If the irrevocable trust in the previous paragraph contains cash assets, rather than having the trust pay taxes (assuming the trust is not a grantor trust) at it's high tax rates the better approach is to have the trustee invest the cash into tax-deferred annuities. A tax-deferred annuity, even though it earns income each year, is not taxed until the trustee elects to take a withdrawal or annuitize the tax-deferred annuity contract. At that time the trust would be required to pay income taxes. If the tax-deferred annuity involves a withdrawal, the taxable portion of the withdrawal amount is to the extent of deferred income - "Last in First Out" treatment. Once all of the deferred income is withdrawn, the remaining portion is simply return of principal - which is always non-taxable. If the tax-deferred annuity is annuitized (converted to an immediate annuity), the deferred income is equally spread out over the period certain time frame. Thus, a portion of each immediate annuity payment is deferred income - taxable, and return of principal - nontaxable. # # # Krause Financial Services specializes in helping families qualify for Medicaid benefits through the use of Medicaid Compliant Annuities, and Veterans Aid & Attendance benefits through the use of various life and annuity insurance products. End
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