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.

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    There are two broad categories of annuity: fixed and variable. These categories refer to the manner in which the investment ... Read Full Answer >>
  3. What are the risks of rolling my 401(k) into an annuity?

    Though the appeal of having guaranteed income after retirement is undeniable, there are actually a number of risks to consider ... Read Full Answer >>
  4. How do I get out of my annuity and transfer to a new one?

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    Annuities can sound enticing when pitched by a salesperson who, not coincidentally, makes huge commissions selling them. ... Read Full Answer >>
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