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Posted November 16th, 2015

Reserving the Right to Revoke

Revoke what? Revoke the right of another to receive gift annuity or charitable remainder trust (CRT) payments.

The right to revoke has one and only one purpose: to prevent the making of a gift for federal gift tax purposes1. Here’s an example:

The donor, using her own assets, creates a gift annuity that is to provide payments first to the donor for life and second to the donor’s friend for life if the friend survives the donor.

Under the gift annuity agreement, the donor reserves the right to revoke the annuity payable to her friend. Without the right to revoke, the donor would make a gift to her friend for federal gift tax purposes, a gift that would eat into the donor’s so-called “lifetime gift tax exemption.” The right to revoke eliminates this gift because it leaves uncertain during the donor’s life whether the friend will receive annuity payments.

There are a number of issues that can arise in connection with a right to revoke. Click here to download our free white paper “Good Planning with the Right to Revoke” for more information.

by Jon Tidd

 

  1. Sometimes individuals do exercise the right to revoke, for non-tax reasons, usually a falling out with the individual whose annuity payments are revoked, but this is rare.

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