Can anyone share the basics of a private annuity?I am familiar with annuities but would like to havediscretion 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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