First American Exchange Company

Dear S.E.C. Members and Guests:

During the past few months I have received requests for additional information regarding the increasingly popular Private Annuity Trust. As this is not a product offered by First American or any of its subsidiary companies, I took the liberty of recruiting a representative from Quantum Advisors, Betsy Hartwell, to provide an article containing some of the facts surrounding this product. First American has not validated any information contained in this article, does not have any affiliation with Quantum Advisors, nor are we in any joint effort relationship of any kind. I am providing this information solely for informational purposes in an effort to answer questions posed to me regarding PAT’s as well as to provide a resource for additional information.

Any further inquiries may be made directly to Quantum or other provider of PAT services in the industry (I will be more than happy to provide a list for you). The PAT is a completely separate long term investment opportunity for owners of real estate to roll the value of their property at time of sale into a trust for future retirement planning. It is a product which offers tax deferral until payments/distributions from the trust are received by the investor. Obviously this would be an alternative to 1031 exchanges. It would further be my understanding that there would be no opportunity for individual referral sources to receive compensation for placing a client with an organization such as Quantum for a Private Annuity Trust.

Frances Buerman
Certified Exchange Specialist®
Sr. Vice President
First American Exchange Company, LLC

The Private Annuity Trust: Defer or Eliminate Current Capital Gains Taxes When You Sell…

With real estate values skyrocketing, most owners and investors have dramatically increased their wealth – at least on paper. Many owners would like to sell their properties, but know that taxes could devour up to 44.3 percent of their gain. In some cases, taxes are more than the original price of the property, especially if both capital gains taxes and depreciation recapture are involved. For many owners, the flexibility and financial advantage of the tax efficient sale strategy called a Private Annuity Trust is the key to capitalizing on all their appreciation, without fear of taxation.

A Private Annuity Trust (PAT) is a special type of sale that allows you to:

  • Pay capital gains taxes over your lifetime, rather than all in the year of sale.
  • Create a lifetime income stream
  • Create complete asset protection from lawsuits and creditors
  • Access funds if needed
  • Transfer assets to your beneficiaries, estate tax free.

How does it work?

A Private Annuity Trust is established BEFORE the property is sold, or at least while still in escrow. The property is transferred into the trust; the Trust makes a promise of lifetime income to the seller. When the Trust sells the property, the proceeds go into the trust, to be invested. Because the value of the property is equal to the amount promised in lifetime income, no tax is due. With a PAT all of the sale proceeds are invested, (rather than an after-tax amount); using institutional money managers ensures proper asset diversification and management, based on each investor’s goals. The money may be invested in securities, real estate, or even in a new or existing business. A conservative tax strategy, the PAT has been in the IRS Code since 1955, but has only recently been widely used as a tax deferral and wealth building tool. Whether assets are a primary residence, residential investments or commercial property, a business, stocks or even artwork, the PAT is an effective tax and financial planning tool that allows you to retain more of the asset’s full value, without unnecessary taxation.

When do I pay capital gains?

You only pay taxes on the income you receive from the trust; in each payment a portion is tax free, as a return of basis; a portion is taxed at capital gains rates, and only the remaining portion is taxed at ordinary income rates. Your payment amount is determined by the IRS based on life expectancy, and their formulas for payment calculation.

How long can I defer payments? Can I take cash out of the sale upfront?

You can defer payment up until you reach 70.5 years old, or begin taking payments whenever you wish. Once started, the payments will continue over your lifetime. You may keep some cash from the sale out of your trust, if you’re willing to pay taxes on it; many sellers choose, instead, to borrow from their Trust, for access to cash, and repay the Trust over time.

Can I choose any beneficiaries?

Whether you choose your children, family members, an institution or a charity, the assets will transfer estate tax free. A Private Annuity Trust is considered irrevocable – so it’s important to choose wisely when it’s established. While changes are not generally encouraged after its creation, there are specific steps to account for unique circumstances.

What happens if I live longer than life expectancy?

Your payments continue for as long as you/your spouse live, regardless of how long that is. If you live 15 years past your life expectancy, your trust payments will continue throughout your lifetime. Upon your death, payments terminate and all remaining assets are passed to your beneficiaries free of estate and gift taxes.

For these reasons, and several more, the Private Annuity Trust is a powerful resource for investors in today’s real estate market. It pays to know all your options before completing a property sale – the details CAN make a huge difference!

For more information, and a Free Copy of a comprehensive 32 page report, “A Way Out – Deferral of Capital Gains and Depreciation Recapture”
call 916-521-5420, or email:

Information provided by Quantum Advisors, Roseville CA. for Professional Use Only. Securities offered through QA3 Financial Corporation, member NASD and SIPC, Advisory Services offered through QA3 Financial LLC, a SEC Registered Investment Advisor.

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