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Author: Wradical Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121181  
Subject: Re: private annunity ? Date: 8/20/2012 10:38 AM
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Can anyone share the basics of a private annuity?

I am familiar with annuities but would like to have
discretion over where the principal is invested.


Normally you buy an annuity from an insurance company. A private annuity, by contrast, is a transaction between private parties. It is usually done between family members, as a way to finance the sale of assets, or between closely-held corporations and shareholders as a means to redeem stock.

The basics are that the assets are sold for a price that includes cash plus a series of payments structured as an annuity, to cease at either a term certain, or the death of the seller(s). This is an alternative to an installment note, which has a definite fixed amount and terms. If the annuity ceases at the death of the seller, it is not includible in his/her taxable estate, as an installment note would be.

It's not something you would normally do with funds you have, that you want to invest, unless you know a private party whose credit is as good as an insurance company.

I used to see the topic around but not lately.

There's a reason for that, too. The IRS has issued proposed regs. (of questionable legality, IMNSHO,) that effectively treat the use of a private annuity as an installment sale, for transactions entered into after October 18, 2006. This takes away most the advantage of them for estate planning purposes, and therefore, a deal will be drawn up as an installment sale instead, as that will be the tax treatment.

Bill
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