1. With regard to REITs,
a. Why do their dividends typically exceed their reported income?
REITs invest in real estate and then trade on the stock market like stocks. However, their business is real estate. The cause of dividends that exceed income is based on depreciation. Real Estate for the most part "appreciates" in value. REITs can restate the value of the real estate and capitalize on the appreciation. This coupled with rents received as income can allow a REIT to have a higher dividend than the "income" from rents.
b. Why is this useful to investors?
Because part of the dividend is based on the appreciation of the assets, there are no taxes on this appreciation until the asset is sold. This can have the effect of lowering the overall tax burden of the investor or at least deferring it to a future time.
2. What is an advantage of converting some of your wealth at retirement
into an immediate or deferred annuity?
An advantage of converting wealth to an annuity when retirement comes around, is that the annuity will pay you a "wage" and that is an easy way to manage money. In retirement, people normally don't want to hassle with figuring out how much they have to withdraw from their funds. The annuity simplifies things so that the retiree can enjoy their retirement.
3. How can one avoid probate?
There are currently different ways to avoid probate when one passes away. The easiest is to give a lot of your money away before you die. You do pay gift taxes, but it might not be as much a hassle as probate. You can also create trusts that have rules in the way they handle money and are independent of your will and thus avoid probate.
4. How can one avoid estate taxes?
In order to avoid estate taxes, again gifts are a way to not pay estate taxes, you just pay gift tax. Life insurance can also avoid estate taxes if it is set up in a Irrevocable Life Insurance trust. A joint account with the beneficiary will avoid taxes on everything the beneficiary has a claim to (usually half).
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