We Started With A Simple Question
When planning for lifetime income or retirement income, most people focus on one number:
How much income will I receive?
We believe a more important question is:
How much of that income will I actually get to keep?
After all, your lifestyle is funded by after-tax spending power, not pre-tax income.
For this reason, we began by studying how traditional lifetime income and retirement solutions are taxed.
The Retirement Income Benchmark
Most retirees are familiar with one or more of the following:
• Pension & Retirement Account Withdrawals (e.g. IRAs/401Ks)
• Annuities bought with Personal Savings (Non-Qualified Annuities)
These structures are designed to provide income in retirement, but they can produce very different tax outcomes. A sophisticated advisor would also look at trust taxation when considering an optimal approach.
In simplistic terms, the relative tax treatment is as follows:
• Pension and Retirement account distributions are generally treated mostly as taxable income,
• Annuities are treated as partly capital return and partly taxable income.
• Trusts with income-producing assets are treated as partly capital return and partly taxable income.
• Trusts with assets such as Gold are treated as partly capital return, partly long term capital gains.
The last point is key because tax free allowances for long term capital gains tax are typically far more favourable than for income tax:
| Filing Status | Ordinary Income Tax-Free Allowance | Long-Term Capital Gains Tax-Free Allowance |
|---|---|---|
| Single | $15,000 | $48,350 |
| Married Filing Jointly | $30,000 | $96,700 |
| Head of Household | $22,500 | $64,750 |
For this reason, the tax character of a distribution can be just as important as the amount received.
Tontine Trust Funds focus on Gold, Silver and Bitcoin and similar assets.
But why not stocks?
These assets were selected because they are generally held for long-term appreciation rather than generating ongoing interest, dividends or rental income.
Comparison With Different Sources Of Lifetime / Retirement Income
Let’s use a simplified example to illustrate the tax treatment of various different sources of lifetime spending monies.
In this example, a member receiving $240,000 per year from a Gold Tontine Trust Fund may realize only approximately $22,000 of taxable gain.
Under the assumptions used in this example, that gain falls below the current $48,350 federal long-term capital gains allowance for a single filer.
Illustrative Dollar for Dollar Tax Comparison based upon the assumptions shown below:
| Source of Distributions | Expected Tax Treatment | Gross Monthly Distribution | Gross Annual Distribution | Estimated Federal Tax | Net Annual Spending | Net Monthly Spending |
|---|---|---|---|---|---|---|
| Pension / IRA / 401(k) | Ordinary Income | $20,000 | $240,000 | $47,000 | $193,000 | $16,083 |
| Annuity bought with personal savings | Part Capital / Part Ordinary Income | $20,000 | $240,000 | $12,500 | $227,500 | $18,958 |
| Grantor Trust (10% Annual Income on Assets) | Part Capital / Part Ordinary Income | $20,000 | $240,000 | $38,000 | $202,000 | $16,833 |
| Tontine Trust Fund (10% Annual Gains on Gold) | Part Capital / Part Long-Term Capital Gains | $20,000 | $240,000 | $0 (~$22,000 gain falls below the $48,350 LTCG allowance) | $240,000 | $20,000 |
Note: This is an illustrative example only. Assumes a single U.S. male aged 65 receiving $20,000 per month, no other income, federal taxes only, current tax law. Actual tax outcomes will vary.
Additional Considerations For U.S. Members
U.S. Estate Inclusion And Basis Treatment
For U.S. members, the Trust is intended to be structured and administered so that Trust Property attributable to a deceased member is expected to be included in that member's gross estate for U.S. federal estate tax purposes.
The Trust documentation further contemplates administration on the assumption that Trust Property receives a fair market value basis adjustment upon death, although this treatment is expressly described as intended rather than guaranteed.
Members should consult their own tax advisors regarding the application of these provisions to their individual circumstances.
No Tax Advice
Tontine Trust does not provide tax, legal, accounting or financial advice.
The information on this page is provided solely for educational and illustrative purposes and should not be relied upon as tax advice.
Potential members should consult their own professional advisors before making decisions regarding contributions, distributions, estate planning or tax reporting.