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When making the required annuity distributions, it is possible to distribute property in place of cash back to the annuitant. When property is distributed back to the annuitant, is there a taxable event of of recognizing the difference between market and tax basis, or does the annuitant just receive the property with the trusts tax basis.
Peter McNeil
peterjmcneil@verizon.net
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Member
 
Group: Forum Members
Last Login: 7/16/2008 8:58:40 AM
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| Peter I am presuming that you are satisfying the annuity payment with appreciated property. If that is the case, off the top of my head, there would be gain to the GRAT which would be allocated to the capital gain pool and in computing the character of the distribution to the annuitant on the K-1 you would use the FMV of the property distributed and allocate the pools as if you had distributed cash. As for the basis of the property received it should be at the FMV used by the GRAT when the distribution was made.
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| I have a client who just funded a two year GRAT with appreciated stock from a closely held company. In the trust document he is allowed to make in kind distributions to himself. A very good question is raised though about basis versus FMV. Usually a trust or estate is to pay any capital gains tax on pecuniary bequests of appreciated property. In a GRAT it appears that a grantor trust return is filed and all of the income is picked up by the grantor, so I don't know if the grantor will recognize a gain or not?
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