In your CPA firm's experience, what is the most material overlooked deduction in the estate, gift and trust income tax area?

Without any doubt, the business deduction for the losses on annuity contracts is rarely deducted because it is rarely disclosed by sureties. Upon the death of the last annuitant, to the extent the cost basis on the annuity has not been completely amortized, it is common for a loss to be sustained.

Think about it, sureties are in the business of arranging contracts to their benefit and thus, in their perfect world, no one is intended to receive their investment back, let alone a return. Consequently, this deduction is frequently very material and in addition to zeroing the year of death taxable income, it may generate a Net Operating Loss for both Regular and Alternative Minimum Tax purposes that may be carried back to offset taxable income during the preceding two tax years generating refunds.

This deduction is commonly missed because sureties are not required to disclosure the loss on Form 1099-R, and most don't wish to publicize that anyone purchasing their investments sustains losses. Our experience is that sureties intentionally avoid disclosure of contract details and taxation histories to an executor, executrix or trustee. They don't want to say, "Sorry for loss of your loved one but our pricing, after medical testing before signing the contract, paid off really big for our actuarial department."

If you have any questions, do not hesitate to contact the professionals at Dana S. Beane & Company, P.C.

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