Private Annuity

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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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RELATED FAQS
  1. What are the best ways to sell an annuity?

    The best ways to sell an annuity are to locate buyers from insurance agents or companies that specialize in connecting buyers ... Read Full Answer >>
  2. How are non-qualified variable annuities taxed?

    Non-qualified variable annuities are tax-deferred investment vehicles with a unique tax structure. After-tax money is deposited ... Read Full Answer >>
  3. Can a variable annuity be rolled into an IRA?

    You can roll qualified variable annuities, such as other qualified retirement plan accounts, into a traditional IRA. Non-qualified ... Read Full Answer >>
  4. Are variable annuities subject to required minimum distribution (RMD)?

    Variable annuities are insurance contracts that provide tax-deferred growth of assets that can later generate a guaranteed ... Read Full Answer >>
  5. For what types of financial instruments would I want to calculate the present value ...

    Because the present value of an annuity formula relies on a consistent interest rate and identical payments for a set period ... Read Full Answer >>
  6. What exact information is included in the interest rate when calculating the present ...

    When calculating the present value of an annuity, the interest rate percentage is the rate at which future payments are discounted ... Read Full Answer >>

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