What is a Private Annuity?

Answer:
A private annuity is a type of annuity that

is either personal or restricted.

Private annuities are different from commercial annuities in that the company or individual that assumes the private annuity’s obligation is not in the business of selling annuities.

An arrangement is made between the client and the company (or individual) where the company or individual promises to pay the client fixed payments for the remainder of the client's life in exchange for the client transferring property such as cash, securities, real estate, or small business ownership to the company or individual.

The client is called the “transferor” or “annuitant” while the company who receives the property is called the “obligor.”

Private annuities generally take place “privately” as the name suggests. For example, parents may create a private annuity between themselves and their children.

Many people use private annuities as an estate planning tool which removes the property from the taxable estate. Since the private annuity’s assets are sold to the obligor, they are not considered a gift and are not subject to gift taxes.


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