Private Annuity: A Comprehensive Guide to Wealth Transfer
The private annuity is a commonly used method of transferring wealth to another individual. Here are the basics of the private annuity.
The Private Annuity
A private annuity is an agreement between two individuals that involves the transfer of an asset from one to another. One party will provide an asset to the other, and the second individual will then make regular annuity payments to the first for the rest of the first person's life.
In order to qualify as a private annuity, the person that issues the annuity payments cannot be in the business of regularly selling annuities. Therefore, a private annuity cannot come from an insurance company or a bank. In most cases, this procedure is done between family members or close friends as a way to transfer a home or other asset.
Why It Is Used
This method is used so that you can avoid paying estate taxes or gift taxes when conveying money to another individual. When you use an annuity to do this, it is classified as the sale of a product. Because of this, there is no estate or gift tax for you to worry about. Since it is classified as a sale, you can provide the other person with regular payments, and they will not be looked at as gifts by the IRS.
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