QUESTION: Do you think a variable annuity without a living/death
benefit rider would be a viable alternative to setting aside money for
a charity instead of a CRT? If it's a high net-worth client there
shouldn't be a need for them to touch the money through any
withdrawals while it still gives them the advantage of tax deferral
and a wide range of investment options in the subaccount. Should the
client die the non-qualified portion could be designated to the heirs
while the qualified portion could be directed towards a charity, who
have their own tax advantages. Thank you for any input you might have
on the subject.

REPLY: I'm a bit confused by the reference to a "qualified" portion
and "non-qualified" portion. In my experience, the term "qualified" in
the context of an annuity means an annuity that is part of a tax
qualified retirement savings plan. I have not encountered annuity
contracts that are both so I won't comment on that aspect of the
question.

Without doing any research on the subject, I'm assuming you have
already determined that the accumulated and tax deferred income in the
contract at the time of death would be income in respect of a decedent
(IRD)-- which is usually taxable as income of the decedent's estate,
but that it would also be allowed as a charitable deduction for the
estate. Ideally, it would be allowed as both an income tax deduction
and as a deduction from the value of the estate. But I can't offer an
opinion on that without some research. Perhaps some other member of
this group already knows the answer to that question.

If there are no income or estate taxes imposed on the value of the
annuity benefits left to a charity, then I suppose it would have some
similar benefits to a charitable remainder trust (CRT). One difference
that occurs to me is that the CRT permits the donor to manage the
money in the account to the extent that the funds are invested in
readily marketable assets or securities. With a variable annuity, the
account owner is limited to the various funds that are owned by the
insurance carrier. Both the variable annuity and the CRT would permit
the taxpayer to receive an income if that was desired.

If the taxpayer has no interest in receiving any lifetime annuity
benefits, it's somewhat difficult for me to see why he or she would
want to defer the payment to the charity. An alternative would be to
place the current funds into a donor advised fund or into a private
charitable foundation.

Since I have some reservations about the question, perhaps some other
members of this group would like to comment. I'll publish those that
seem to be based on an informed knowledge of the relevant law.

Vern Jacobs
http://www.offshorepress.com/legalways2save.htm