Private Annuity

AAA

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.

INVESTOPEDIA EXPLAINS '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. Life Expectancy

    1. The age until which a person is expected to live. 2. The remaining ...
  2. Obligor

    A person or entity who is legally, or contractually, obliged ...
  3. Trust

    A fiduciary relationship in which one party, known as a trustor, ...
  4. Annuitant

    1. A person who receives the benefits of an annuity or pension. ...
  5. Estate Planning

    The collection of preparation tasks that serve to manage an individual's ...
  6. Estate Tax

    A tax levied on an heir's inherited portion of an estate if the ...
Related Articles
  1. Getting Started On Your Estate Plan
    Options & Futures

    Getting Started On Your Estate Plan

  2. Refusing An Inheritance
    Retirement

    Refusing An Inheritance

  3. Saving Money With A Private Annuity ...
    Retirement

    Saving Money With A Private Annuity ...

  4. Are Equity-Indexed Annuities Right For ...
    Savings

    Are Equity-Indexed Annuities Right For ...

comments powered by Disqus
Hot Definitions
  1. Ghosting

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  2. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  3. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  4. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  5. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  6. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
Trading Center