Message Font: Serif | Sans-Serif
No. of Recommendations: 3
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.

Print the post  


In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.