Private Annuity

DEFINITION of 'Private Annuity'

An agreement between two parties in which one party (annuitant) transfers an asset to another party (obligor) in return for unsecured payments for the remainder of the annuitant's life. For the agreement to be classified as a private annuity, neither party can be in the business of selling annuities - that is, neither party can be an insurance company.

BREAKING DOWN 'Private Annuity'

The tax benefits of the asset transfer are the major benefit of this type of agreement. In most cases, a private annuity is used to transfer assets to a family member where a normal transfer would be subject to gift or estate taxes. The private annuity effectively makes the transfer a sale, thus removing high gift and estate taxes that would come with a simple asset transfer. The interest rate that is used for calculating the payments on the annuity is determined by IRS 7520 rates. Once this rate is set, it cannot be changed. This annuity will often be held in a trust to defer tax.

RELATED TERMS
  1. Annuity

    A financial product that pays out a fixed stream of payments ...
  2. Estate Planning

    The collection of preparation tasks that serve to manage an individual's ...
  3. Gift Tax

    A federal tax applied to an individual giving anything of value ...
  4. Estate Tax

    A tax levied on an heir's inherited portion of an estate if the ...
  5. Internal Revenue Service - IRS

    A United States government agency that is responsible for the ...
  6. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
Related Articles
  1. Options & Futures

    Getting Started On Your Estate Plan

    With some preparation, you can save your heirs from paying a hefty estate tax. Here are some tips.
  2. Retirement

    Refusing An Inheritance

    Contrary to popular belief, inheriting assets isn't always a good thing. Find out what to do if you want to disclaim them.
  3. Retirement

    Saving Money With A Private Annuity Trust

    Learn about a strategy that could help you reduce taxes, diversify your portfolio and generate income.
  4. Investing Basics

    The Top 4 Income Investments for Retirees in 2016

    These four investment types should mitigate risk in 2016 for retirees seeking income.
  5. Fundamental Analysis

    3 Variable Annuities to Consider

    Discover three variable annuities to consider in your retirement portfolio. Read summaries of each annuity and the benefits they offer.
  6. Products and Investments

    How to Hedge Longevity Risk with Annuities

    Many Americans are looking for guaranteed retirement income that will last as long as they will. Here's how immediate annuities do just that.
  7. Products and Investments

    An Annuity Lowdown for Investors and Advisors

    Knowing how annuities work starts with an explanation of what each part is. Here is a list of terms that cover the basic aspects of annuities.
  8. Retirement

    3 Safer Income-Oriented Asset Classes for Retirees in 2016

    Learn why the chase for safe retirement income will continue in 2016 with market yields remaining low, even with the Fed's first tightening move in many years.
  9. Products and Investments

    How to Avoid Overpriced Annuities

    The key to not paying excessive fees for annuities is understanding how they work. Here's what you need to know.
  10. Products and Investments

    5 Top Strategies for Generating Retirement Income

    These are the most common types of investments that can generate income on a regular basis during retirement.
RELATED FAQS
  1. Where else can I save for retirement after I max out my Roth IRA?

    With uncertainty about the sustainability of Social Security benefits for future retirees, a lot of responsibility for saving ... Read Full Answer >>
  2. How liquid are variable annuities?

    Variable deferred annuities and variable immediate annuities are not considered liquid. Variable deferred annuities carry ... Read Full Answer >>
  3. Do variable annuities have RMDs?

    Variable annuities are not subject to required minimum distributions (RMDs) unless they are held in qualified plans, such ... Read Full Answer >>
  4. Can variable annuities be rolled into an IRA?

    Variable annuities are often found in government or nonprofit employer retirement plans such as 403(b) or 457(b) plans. With ... Read Full Answer >>
  5. How do I calculate the future value of an annuity?

    When planning for retirement, it is important to have a good idea of how much income you can rely on each year. There are ... Read Full Answer >>
  6. Are variable annuities protected from creditors?

    Whether your variable annuity is protected from creditors depends on the state in which you live. About three-quarters of ... Read Full Answer >>
Hot Definitions
  1. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  2. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  3. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  4. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  5. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  6. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
Trading Center