April 20, 2018


Under a private annuity, an agreement is signed that requires one party (the transferor-annuitant) to transfer ownership of property to another party (the transferee-buyer). In return, the transferee-buyer makes periodic (typically monthly, quarterly, semi-annual, or annual) payments to the transferor for a specified period (usually the lifetime of the transferor or the transferor and transferor’s spouse).

The private annuity is a useful tool for an individual who wants to spread gain from a highly appreciated asset over his or her life expectancy.

The private annuity is also a useful federal estate tax saving tool because, by design, payments end when the transferor dies and the entire value of the asset sold is immediately removed from the transferor’s gross estate. In other words, there is no estate tax in the transferor’s estate from the transferred property – because it belongs to the buyer from the moment the private annuity document is signed.

Another advantage is that the private annuity allows someone who owns non-income-producing property to make that property productive.

The ideal transferor/payor situation is one that meets the following criteria:

  • The transferor is in a high estate tax bracket or has no marital deduction.
  • The property is capable of producing at least some income and/or is appreciating rapidly
  • The payor is capable of – at least in part – paying the promised amounts.
  • The parties trust each other (the private annuity must be unsecured).
  • The transferor has other assets and sources of income.
  • The transferor has less than a normal life expectancy. (This makes the arrangement more of a bargain for the buyer)