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. Whole Life Annuity Due

    A financial product sold by insurance companies that requires ...
  2. Years Certain Annuity

    An insurance product that pays the holder a monthly income for ...
  3. Annuity

    A financial product that pays out a fixed stream of payments ...
  4. Contingent Annuitant

    Someone designated by an annuitant to receive the annuitant’s ...
  5. Cash Refund Annuity

    An annuity contract that returns funds back to a beneficiary ...
  6. Immediate Payment Annuity

    An annuity contract that is purchased with a single lump-sum ...
Related Articles
  1. Bonds & Fixed Income

    Explaining Types Of Fixed Annuities

    Learn about this popular retirement tool, its pros and cons and how annuities work to create a guaranteed regular stream of retirement income.
  2. Retirement

    Analyzing The Best Retirement Plans And Investment Options: Annuities

    What they are: Insurance products that provide a source of monthly, quarterly, annual or lump sum income during retirement. Pros: Tax-deferred growth of earnings; no annual contribution limit; ...
  3. Investing

    Advising FAs: Explaining Annuities to a Client

    Conceptually speaking, annuities can be thought of as a reverse form of life insurance.
  4. Retirement

    How a Fixed Annuity Works After Retirement

    These popular investments can provide a steady stream of income during your retirement years. Here are the details.
  5. Retirement

    Guaranteed Retirement Income In Any Market

    By laddering annuities, you can be sure you'll have income no matter what the market does.
  6. Options & Futures

    Immediate Annuities: Guaranteed Payout At A Price?

    This vehicle can have very low, or even negative, rates. Find out when it pays to invest.
  7. Retirement

    How a Variable Annuity Works After Retirement

    These investments can provide extra income after you retire. Here’s a guide to when and how you will receive the payout.
  8. Retirement

    Who Benefits From Retirement Annuities

    Annuities guarantee some degree of fixed income in retirement. But is the security worth the fees and less favorable tax treatment? How to decide.
  9. Retirement

    Annuities Vs. Bonds: Which One Is Better For You?

    Compare the important features of annuities and bonds, and understand which investment vehicle is the better choice based on retirement goals.
  10. Retirement

    Introduction To Annuities

    Everything you need to know about annuities.
RELATED FAQS
  1. How do I get out of my annuity and transfer to a new one?

    Find out how to transfer your investment from one annuity to another, including what factors to consider before making the ... Read Answer >>
  2. For what types of financial instruments would I want to calculate the present value ...

    Learn about the types of financial instruments the present value of an annuity calculation is most useful for, including ... Read Answer >>
  3. What are the risks of annuities in a recession?

    Distinguish between the most common types of annuities, and understand which types of annuities pose the most risk during ... Read Answer >>
  4. Should I pull my money out of an annuity if the insurance company is having financial ...

    If an insurance company is having financial problems, you don't necessarily have to pull your money out of the annuity. Even ... Read Answer >>
  5. What happens to my annuity after I die?

    Understand the different types of annuity payment plans and what payments or additional benefits are payable to your beneficiaries ... Read Answer >>
  6. Are variable annuities tax deferred?

    Learn how variable annuities are tax-deferred, but also understand some of the less advantageous tax implications from purchasing ... Read Answer >>
Hot Definitions
  1. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  2. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  3. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  4. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  5. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  6. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
Trading Center