October 18, 2012 Comments (0) Blog, Securities Fraud

Recovery of Investment Losses suffered in a Private Annuity Trust

(Last Updated On: July 17, 2015)

Have you suffered losses investing in a Private Annuity Trust recommended to you by your financial advisor?  If so, the securities attorneys of The White Law Group may be able to help you recover those losses through a FINRA arbitration claim.

A private annuity trust (or PAT) is a tax minimization strategy that enables the value of highly appreciated assets, such as real estate or an investment portfolio, to be realized without directly selling them and incurring substantial taxes from their sale.

A properly structured PAT involves first transferring the asset to the PAT in return for a lifetime income stream in the form of an annuity. The transfer of the asset is not a taxable transaction. It is important to understand that a PAT is not issued by a commercial insurance company. Anytime after the asset is placed into the PAT the asset can be sold without taxation to the trust. There is no tax on the sale to the PAT because the PAT has actually purchased the asset from the owner for the fair market value of the asset. The PAT pays the owner for the asset with a lifetime income stream. The PAT has a basis equal to the fair market value so the PAT can sell the asset for fair market value and not be subject to taxation. The original owner of the asset pays taxes only on the PAT payments received, not on the transfer of the asset to the PAT.  As of October 2006 the IRS ruled that the PAT is no longer a valid capital gains tax deferral method.

Financial advisors often touted a PAT as a great tax minimization strategy without discussing the costs involved with implementing the strategy.  Due to the high costs, investors are often better off if they had merely paid the taxes they owed and invested in something else.

In the article, “Private Annuity Trust – The Numbers Don’t Support the Hype“, Kevin J. McGrath wrote that “economic analysis of the private annuity trust reveals that not only is it worse than perhaps most every other tax minimization strategy that would be available to a taxpayer, but the private annuity trust also leaves the taxpayer in a worse economic position than the taxpayer would be in by merely selling the asset and paying the tax.”  For the full version of Mr. McGrath’s article visit http://www.quatloos.com/mcgrath_article.htm.

The White Law Group is investigating the liability that broker-dealers and financial professionals may have for improperly recommending the PAT for tax minimization purposes.  Brokerage firms and financial advisors have a fiduciary duty to perform adequate due diligence on any investment or investment strategy they recommend and to ensure that such recommendations are appropriate for their client in light of that particular clients’ age, income, investment experience, investment objectives, and net worth.

If you suffered losses investing in a PAT, please call The White Law Group at 312/238-9650 for a free consultation.

The White Law Group is a national securities fraud, securities arbitration, and investor protection law firm with offices in Chicago, Illinois and Boca Raton, Florida.

For more information on The White Law Group, visit http://www.whitesecuritieslaw.com.

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