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I have an 80 year old relative with less then 100K in a variable annuity. Its basis is probably about 25K meaning there is about 75K in appreciation over a 20 year period. My relative will not need this money before death other then the small amount of interest it throws off monthly. This relative also wouldnt want to take a current distribution of this money because it would disturb an income based prescription drug benefit. The main concern is the tax liability to the heirs. What are some good strategies to avoid the taxation?

2007-09-28 02:27:46 · 2 answers · asked by Devdude 5 in Business & Finance Taxes United States

2 answers

With only $100k in question, there won't be any taxes if that's their entire estate. The estate tax exlcusion is currently $2 million. The appreciation would pass tax free to the heirs. The only items that pass to an heir with a tax liability attached are qualified pension plans such as traditional IRAs or 401(k)s where the contributions went in tax-free.

2007-09-28 03:25:30 · answer #1 · answered by Bostonian In MO 7 · 0 0

Is this a Roth IRA? If so, there is no income tax due on the distributions to the heirs as long as the account has been in existence for five years.

If it is a taxable annuity, then the proceeds should go to the heirs with the lower tax brackets, and other assets such as real estate should be willed to those in the higher tax brackets.

2007-09-28 03:25:01 · answer #2 · answered by ninasgramma 7 · 0 0

If your relative does not take the required distribution, then he/she may have to pay 50% excise duty (depends upon the plan); but not if it is Roth IRA.

2007-09-28 04:49:42 · answer #3 · answered by MukatA 6 · 0 0

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